The effect of sovereign wealth funds on the credit risk of their portfolio companies

Bertoni, Fabio; Lugo, Stefano

doi:10.1016/j.jcorpfin.2014.04.004

Cited by 52 publications

(31 citation statements)

References 34 publications

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“…Bertoni and Lugo () study the effect of SWF stock purchases on the credit risk of target firms. The authors compute and analyze changes in credit default swap (CDS) spreads for a sample of 391 direct SWF investments over 2003–2010.…”

Section: The Impact Of Swf Investments On Target Firmsmentioning

confidence: 99%

“…Five studies examine how SWF equity investments impact the valuation, credit risk, and/or financial return volatility of target firms post-investment. Since these studies employ differing methodologies and samples, and examine different performance metrics, it is harder to draw general conclusions regarding their findings, except to say that two of these studies (Fernandes, 2014;Bertoni and Lugo, 2014) find that SWF investments generally increase target firm value and/or reduce the target's credit risk, while Knill et al (2012a) find that both the risk and return of target firms' stocks decline following SWF investments. Borisova et al (2014) document that SWF investment in target firms' stock is associated with an increase in those firms' bond yield spreads-and thus their cost of debt financing.…”

Section: Impact Of Swf Investment On Target Valuation Credit Risk Amentioning

confidence: 99%

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Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Megginson

Fotak

2015

Journal of Economic Surveys

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We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year‐end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand‐alone wealth management funds; we both survey this research and show that more than 25 countries have launched or proposed new SWFs since January 2008. The most salient and controversial feature of SWFs is that they are state‐owned; we survey the existing literature on state ownership and discuss what this predicts about the efficiency and beneficence of government control of SWF assets. We discuss the documented importance of SWF funding sources (oil sales revenues versus excess reserves from export earnings) and survey the normative literature describing how SWFs should allocate funds. We then summarize the empirical literature studying how SWFs actually do allocate funds—across asset classes, geographically, and across industries. We document that most SWF equity investments in publicly traded firms involve cross‐border purchases of sizeable minority stakes (median around 20%) in target firms, with a strong preference for investments in the financial sector. Next, we assess empirical studies examining the impact of SWF stock investments on target firm financial and operating performance, and find universal support for a positive announcement period stock price increase of 1–3%. This, however, is significantly lower than the 5% abnormal return documented for stock purchases by comparable privately owned financial investors in recent studies, indicating a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.

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Section: The Impact Of Swf Investments On Target Firmsmentioning

confidence: 99%

Section: Impact Of Swf Investment On Target Valuation Credit Risk Amentioning

confidence: 99%

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Megginson

Fotak

2015

Journal of Economic Surveys

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“…The third group of variables was price to earning (P/E), leverage ratio (LR), and earnings per share (EPS). The P/E ratio was used by Bernstein et al (2013) in examining the differences between domestic and foreign investment of SWFs, while leverage is considered as a potential variable determining investment by Ciarlone -Micelli (2014) and Bertoni -Lugo (2014). However, Bhatt -Sumangala (2012) suggest that earning per share (EPS) is one of a number of variables being used to explain equity value and equity return.…”

Section: Data and Research Methodsmentioning

confidence: 99%

“…The empirical findings also suggest that EBIT, EBITDA, and net profit can have an influence on how much to invest. The issue of credit risk and SWFs investment in targeted companies has been examined by Bertoni -Lugo (2014). Analysing the changes of credit default swap spreads around the investment announcement, these authors found evidence that, on average, the CDS spread of target companies decreases following a SWFs investment.…”

Section: Literature Reviewmentioning

confidence: 99%

The investment attractiveness of companies listed on the Warsaw Stock Exchange to Sovereign Wealth Funds

Urban

2016

Acta Oeconomica

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The aim of this study is to shed some light on the factors determining the investment decisions of Sovereign Wealth Funds. Using the financial data from companies listed on the Warsaw Stock Exchange, the author employs a logit model to analyse the probability that firms are targeted for investment by the Norwegian Sovereign Wealth Fund. These findings suggest that not only the growth of earnings per share increases the probability of such investment, but that also a company whose shares have been bought by the Government Pension Fund Global has, on average, a higher level of earnings per share than companies not targeted by the Fund. This study contributes to a deeper understanding of the investment activities of the world’s largest Sovereign Wealth Fund.

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“…Some interesting results are found with respect to home bias (Bernstein et al ; Dyck and Morse ) and trading or political relationships among countries (Knill et al ). Some regularities are also found regarding the industrial patterns of investment; most studies indicate that investments in the financial sector represent a large portion of SWFs' portfolios (Bortolotti et al ; Dyck and Morse ; Bertoni and Lugo ). Beck and Fidora () suggest that the tendency of commodity‐based SWFs to invest in the financial sector could be driven by its low correlation with oil returns.…”

Section: Swfs and Their Asset Allocationmentioning

confidence: 99%

Testing the Strategic Asset Allocation of Stabilization Sovereign Wealth Funds

Bertoni

Lugo

2013

International Finance

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None of the models that have been developed to determine the optimal strategic asset allocation (SAA) of stabilization sovereign wealth funds (SWFs) has received direct empirical validation, primarily because there is a lack of transparency regarding some of the key parameters that characterize the problem. In this paper, building on a mean-variance framework, we derive three sets of parsimonious statistical tests to compare the actual SAA of SWFs to a theoretical optimum. We apply these tests to the portfolio of the world's largest stabilization SWF (the Norwegian Government Pension Fund-Global or GPF) for the period between 2002 and 2005. The empirical analysis confirms that the static and dynamic deviations of the GPF's SAA from the market equity portfolio are consistent with the theoretical predictions.Ã We thank the editor of the journal-Benn Steil-and two anonymous reviewers for their excellent and constructive comments. We thank Robert Faff for his suggestions and Stefano Predebon for research assistance. We gratefully acknowledge financial support from Fondazione Ansaldo.

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The effect of sovereign wealth funds on the credit risk of their portfolio companies

Cited by 52 publications

References 34 publications

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

The investment attractiveness of companies listed on the Warsaw Stock Exchange to Sovereign Wealth Funds

Testing the Strategic Asset Allocation of Stabilization Sovereign Wealth Funds

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