Sovereign Shareholder Activism: How SWFs Can Engage in Corporate Governance

Abstract

As the number of, and assets controlled by, sovereign wealth funds (SWFs) has increased dramatically in recent years, so too has scrutiny about how SWFs are making use of these assets. A consensus appears to be developing that large institutional investors, including SWFs, should be aware of corporate governance issues at their portfolio companies, even if they choose not to actively attempt to influence management. Because they are long-term investors and often under political and regulatory scrutiny that makes them less likely to sell, SWF capital tends to be captive capital. Thus, protecting long-term returns by monitoring governance is a priority for many sovereign investors. The difficulty for most SWFs -- and the issue this brief paper addresses -- is how to hold mangers accountable without selling or directly engaging in ways that would concern regulators.