Cross-Country Variations in Sovereign Wealth Funds’ Characteristics

Abstract

In this exploratory study, we analyze the drivers of the variation in sovereign wealth funds’ characteristics across countries. Sovereign wealth funds have emerged as an important instrument for governments to invest and manage excess funds, which despite serving similar needs, vary significantly across countries. We integrate agency theory with the varieties of capitalism framework to propose that the country’s governance characteristics affect sovereign wealth funds’ multi-level agency problem, i.e., politicians acting as intermediaries between the citizens who are the nominal owners and the funds’ managers, and drive the cross-country variations in the characteristics of sovereign wealth funds. More specifically, we argue that the home country’s type and quality of government and the origin of the wealth drive cross-country variations in the transparency and growth of the sovereign wealth funds, leading to a classification of countries by type of SWF. We provide public policy suggestions for addressing these agency problems and improving sovereign wealth fund behavior.