The Rise of State-Owned Investors: Sovereign Wealth Funds and Public Pension Funds

Megginson, William L.; López, Diego Martínez; Malik, Asif I.

doi:10.2139/ssrn.3712690

Cited by 7 publications

(18 citation statements)

References 60 publications

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“…We expect that their engagement (if any) will be limited to commitments that do not harm their immediate investment opportunities and capacity to act but rather helps them to become more competitive and, at the same time, increase their confidence and reputation among other actors. In particular, commitment with regard to responsible, transparent, risk-sensitive, and future-oriented governance criteria might be an asset in this regard [5].…”

Section: Theoretical Backgroundmentioning

confidence: 99%

“…Whereas pension funds have to generate high immediate revenue to finance pensions (liabilities of pensions must be serviced), other SWFs are much more flexible with regard to their investing. As rarities in the investing world in being almost totally unconstrained in their investment policies, they face little or no pressure to boost short-term returns, which facilitates a sustainable investment orientation [5] (p. 3). The quite strict transparency requirements, in terms of their investment policies and allocations to which pension funds are subject, cannot compensate for this advantage, since strict orientation on the present interest of the (upcoming) retirees is a crucial part of their self-preservation strategy.…”

Section: Structure Of the Fund (Pension Fund Mandate Or Other Swfs)mentioning

confidence: 99%

“…The quite strict transparency requirements, in terms of their investment policies and allocations to which pension funds are subject, cannot compensate for this advantage, since strict orientation on the present interest of the (upcoming) retirees is a crucial part of their self-preservation strategy. In addition to the inspection rights of the pension funders, many pension funds are also subject to electoral oversight since a vast majority of them are based in democratic societies [5] (p. 7). While open processes in democracies force many pension funds to be quite transparent, short-term imperatives and desires in democracies have led a great many of them to be underfunded regarding their promised long-term payouts to retirees [17].…”

Section: Structure Of the Fund (Pension Fund Mandate Or Other Swfs)mentioning

confidence: 99%

“…While still a majority of SWFs are based on revenues from the exploitation and sale of natural resources (oil and gas, and some also from others, such as diamonds or copper), a growing number build up on non-commodity sources. In the literature, we find reference that the shift in purchasing power among SWFs from those ultimately funded through oil and gas sales by state-owned, national companies toward those funds that are financed by the accumulation of foreign currency reserves, export surpluses, pension contributions or government deposits out of other sources have augmented their push toward responsible and sustainable investing [5] (p. 6). The underlying argument is that non-commodity-based SWFs might find it easier to follow a more sustainability-oriented investment strategy since this does not necessarily contradict their previous business model.…”

Section: Source Of Funding Of the Fundmentioning

confidence: 99%

“…The present research is focused on the regard of sovereign wealth funds (SWFs) [3,4] -large, state-owned investment entities as a special instance of large-scale investors-for sustainability. State-owned sovereign wealth funds as well as public pension funds had over USD 27 trillion in assets under management in 2020, which makes these funds the third largest group of asset owners, globally [5] (p. 1). SWFs are liable to the governments of their countries of origin and are intended to achieve national objectives rather than being limited to following the capital interests of shareholders.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison

Wurster

Schlosser

2021

Sustainability

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Sovereign wealth funds (SWFs) are state-owned investment vehicles intended to pursue national objectives. Their nature as long-term investors combined with their political mandate could make SWFs an instrument suited to promote sustainability. As an essential precondition, it is important for SWFs to commit to sustainability criteria as part of an overarching strategy. In the article, we present the sustainability disclosure index (SDI), an original new dataset for a selection of over 50 SWFs to investigate whether SWFs disclose sustainability criteria covering environmental, social, economic, and governance aspects into their mandate. In addition to an empirical measurement of the disclosure rate, we conduct multiple regressions to analyze what factors help to explain the variance between SWFs. We see that a majority of SWFs disclose at least some of the sustainability criteria. However, until today, only a small minority address a broad selection as a possible basis for a comprehensive sustainability strategy. While a high-state capacity and a young population in a country as well as a commitment to the international Santiago Principles are positively associated with a higher disclosure rate, we find no evidence for strong effects of the economic development level, the resource abundance, and the degree of democratization of a country or of the specific size and structure of a fund. Identifying favorable conditions for a higher commitment of SWFs could help to initiate pathways to become functional sustainability instruments.

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Section: Theoretical Backgroundmentioning

confidence: 99%

Section: Structure Of the Fund (Pension Fund Mandate Or Other Swfs)mentioning

confidence: 99%

Section: Structure Of the Fund (Pension Fund Mandate Or Other Swfs)mentioning

confidence: 99%

Section: Source Of Funding Of the Fundmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison

Wurster

Schlosser

2021

Sustainability

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Harnessing Sovereign Wealth Funds in Emerging Economies toward Sustainable Development

Elsholkamy

Rahman

2022

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Sovereign Wealth Funds are government investment vehicles that have been present for decades. They are usually characterized by minimum information disclosure, however, this situation differed after worldwide events shed light on the role they possess to mitigate their downturns. The substantial economic influence they bring along due to their size and long term impact have recently created an uproar of debate that eventually led to the ratification of the Santiago Principles. The Principles set the stage for governing SWFs' operations and grant them more clarity. They also contribute to a more stable environment for cross-border investment flows. With the importance of SWFs, emerging economies also rose as key institutional investors; only this time they called for harnessing their funds towards sustainable development investment strategies. Despite pressuring need to improve transparency and governance structures of SWFs in EMs, the former are regarded as promising means for achieving the sustainable development goals.

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Sovereign wealth funds in the post-pandemic era

2023

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Sovereign wealth funds (SWFs) have over $11.5 trillion in assets under management as of February 2023. Most of these 176 funds are sponsored by non-Western countries and their growth has made SWFs important international investors, particularly in private equity funding. We first define SWFs, then discuss their evolution into today's categories of stabilization, savings, and development/strategic funds. We discuss the documented importance of SWF funding sources -oil sales revenues versus excess reserves from export earnings -and summarize the empirical literature studying how SWFs allocate funds geographically and across asset classes. Next, we summarize empirical evidence on the impact of SWF stock investments on target firm financial and operating performance and discuss the evidence showing that the announcement of SWF investment causes target firm stock prices to rise in the short term, but the positive impact is significantly less than the positive return following large stock purchases by private investors, and the longer-term effect of SWF investment on target firms is generally negative. SWFs' recent focus on promoting ESG policies of investee companies is assessed and briefly compared to the effectiveness of other institutional investors' ESG efforts.

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The Rise of State-Owned Investors: Sovereign Wealth Funds and Public Pension Funds

Cited by 7 publications

References 60 publications

Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison

Sovereign Wealth Funds as Sustainability Instruments? Disclosure of Sustainability Criteria in Worldwide Comparison

Harnessing Sovereign Wealth Funds in Emerging Economies toward Sustainable Development

Sovereign wealth funds in the post-pandemic era

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