Rise Of Sovereign Wealth Funds Research Articles

The Sovereign Wealth Funds' Development Role: The Importance of Establishing A Sovereign Fund In Iraq

The rise of sovereign wealth funds has transformed global financial markets. They hold considerable financial assets and invest in developing nations, both those they own and those that wish to invest in them if their investment policy is more welcoming to developing countries. The results indicate that the operations of sovereign funds and the allocation of their assets are active in developed industrial countries. These countries have the most favorable financial and real estate ecosystems and dynamic financial markets that can use these funds profitablyArab sovereign funds are among the most crucial financing funds in the world that can contribute to achieving Arab economic unity. Exploiting the advantages available in the Arab economies provides a suitable productive ground for investing the funds of sovereign funds in successful development projects. Sovereign wealth funds (SWFs) are state-owned investment entities dedicated to achieving national goals. SWFs' inherent characteristics as long-term investors and their governmental mandate may make them an ideal vehicle for promoting sustainability. However, SWFs must adhere to sustainability standards as part of their larger strategy as a prerequisite.

Explaining global imbalances: the role of central-bank intervention and the rise of sovereign wealth funds*

Neoclassical economic theory views current-account imbalances as the result of (individual) decisions to save more than to invest domestically. Monetary analysis in the Keynesian tradition rejects such approaches and emphasizes that a country's net savings are the result, not the cause, of net selling of goods and services to foreigners. The latter, in turn, depends on global demand patterns and absolute advantages between countries. We complement this Keynesian approach, taking a closer look at the financial account of the balance of payments: a necessary condition for countries to net-sell goods and services to foreigners is the willingness of domestic sector(s) to accumulate net foreign assets. While previous analysis of global imbalances has partially discussed the role of central banks' reserve accumulation it has failed to incorporate the macroeconomic role of sovereign wealth funds (SWFs). We analyse eight surplus countries' external positions and find that the public sector typically purchases and manages significant amounts of foreign assets via both central banks and SWFs. This, in turn, supports current-account surpluses. We then consider the particular case of Switzerland where, contrary to other surplus countries, public-sector purchases of foreign assets had been absent for a long time, yet set in massively after 2008.

Sovereign Wealth Funds, the New Actors of Global Economy

Sovereign wealth funds, which provide a new dimension to the forms of state intervention in the economy, are the basis of this work. These state-owned funds for various macroeconomic targets are increasingly weighted in the global economy. Therefore, in the study, the rise of sovereign wealth funds will be analyzed in the context of the state's role in the economy. However, the assessments will be made about both the sovereign wealth funds operating in the national development context and Turkiye Wealth Fund.

Implications of Sovereign Wealth Funds on the Governance of the Middle East Region

:The rise of Sovereign Wealth Funds (SWFs) globally has become an irreversible trend. Among all the regions across the world that have established SWFs, the Middle East has the longest history and possesses huge strengths. Today, it is evident that the SWFs are playing ever-important roles in financial operations, local development and global cooperation for the Middle East, which has major implications for SWFs’ potential on the governance of this region in the future. As an emerging and powerful financial instrument mastered by sovereign countries, especially for those with abundant natural resources, SWFs can eliminate the impact of commodity price fluctuations and foreign exchange earning surpluses on the domestic fiscal and monetary policies, contributing to a stable and sustainable economic and political development. As accepted regular method of close cooperation among countries, especially ones in the Middle East, SWFs can serve various economic and political agendas between the Middle East and the rest of the world, constituting wider and deeper connections despite the lack of private overseas trade and investments in this region. In fact, SWFs from a variety of countries, as well as international financial institutions with sovereign background, have participated actively in the governance of the Middle East region. However, there are still challenges for applying SWF to the governance of the Middle East region. The SWFs in the Middle East need to improve their performance and transparency consistently against the doubt of their sustainability due to the depreciation of oil prices and the complexity of the Arab world. The international community needs to treat the SWF threat theory recognized by some Western developed countries to facilitate further SWF involvements. Vigorous international cooperative mechanisms concerning SWF need to be created to address those issues.

The 'New Normal' of the Swiss Balance of Payments in a Global Perspective: Central Bank Intervention, Global Imbalances and the Rise of Sovereign Wealth Funds

Since the global financial crisis, the Swiss National Bank has been accumulating reserve assets amounting to the size of the Swiss GDP. Yet, the Swiss franc is still considered to be significantly over-valued. This paper analyzes the drivers behind the new situation and discusses challenges and opportunities for Swiss policy making, drawing on comparisons with other surplus countries. Our findings are fourfold. First, the recent upward pressure on the Swiss franc cannot be explained by safe haven effects alone, but has been driven by a pronounced decline in Swiss residents’ foreign investments. Second, other surplus countries typically purchase and manage significant amounts of foreign assets via central banks and sovereign wealth funds. Third, from a global perspective, such public intervention is subject to a mercantilist critique. Fourth, given the need to invest in the real economy to foster growth and avoid the present excess flushing of the financial system that boost asset prices in an insufficient productive way, we conclude that Switzerland should assess room for re-balancing and highlight the opportunity of building a Swiss sovereign wealth fund. This would be beneficial both for Swiss residents and for the world at large.

The Rise of Sovereign Wealth Funds (SWFs) and the Protection of Public Interest(s): The Need for a Greater External and Internal Action of the European Union

This article focuses on the so-called ‘sovereign investors’ (i.e., sovereign wealth funds (SWFs) and state owned enterprises (SOEs)). It is based on the assumption that sovereign investment has become a major – albeit controversial – element in emerging patterns of global governance in this century. At the heart of the paper lies the need that sovereign investors shall be regulated by pursuing a fair balance between protection of general/public interests and attraction of foreign capital. The essay deals with the main concerns related to the rise of SWFs. In this respect, the principal argument implied therein is that the quest for an equilibrium between economic benefits deriving from the entry of SWFs in the EU market and the protection of national as well as European strategic/sensitive sectors must be reached at the EU level rather than solely at the national level and that, in doing so, the EU must be more activist and bolder. The EU should give law a central role, regarding the market as an inherently political, institutional and social construct, rather than a self-referential locus that depends on its internal laws and dynamics. This seems even more urgent when market actors that, at least on paper, should be politically unbiased market-oriented investors, tend to act also as the long arm of State capitalism, that is, of foreign governments wishing to invest abroad in crucial socio-economic sectors and often connected with countries where the rule of law, in its multiple dimensions, is neither sufficiently promoted nor respected.

RISE OF THE FIDUCIARY STATE: A SURVEY OF SOVEREIGN WEALTH FUND RESEARCH

AbstractWe 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.

The Rise of Sovereign Wealth Funds: Definition, Organization, and Governance

This paper addresses the difficulties of accurately defining a SWF, discusses the evolution of the original SWFs from stabilization to wealth funds, and examines how SWFs are organized and funded. We also detail the key measures developed to assess the operational and informational transparency and institutional quality of different fund by comparing the organizational structures, corporate governance systems, and investment patterns observed for SWFs with those documented empirically for other internationally active institutional investors.

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

We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $4.5 trillion in early 2014, are a major force in global finance. Research papers have analyzed the evolution of the initial 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 there exists a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.

Political Capitalism and the Rise of Sovereign Wealth Funds

Sovereign wealth funds are neither novel nor constitute any decisive shift towards state control. States and markets are co-constitutive, but states have power precisely because of their ability to define property rights and thus draw the boundary between public and private activity. The way they draw that boundary determines the nature of capitalism in any specific market. ‘Sovereign wealth fund’ is a nominal label covering three distinct types of organization that distribute property rights in different ways. The first acts to buffer states from the economic problems associated with large-scale resource exports. The second helps states simultaneously develop industry and an industrial bourgeoisie. The third is a vehicle for patrimonial rent extraction via political capitalism. The current spectacular increase in the number and holdings of sovereign wealth funds thus does not presage a distinct shift away from the (easily exaggerated) neoliberalism of the last two decades. Los fondos soberanos no son novedosos ni constituyen ningún cambio hacia el control del estado. Los estados y mercados son co-constitutivos, pero los estados tienen poder precisamente por su habilidad de definir los derechos de propiedad y por lo tanto establecer el límite entre la actividad pública y la privada. La forma como ellos establecen ese límite, determina el tipo de capitalismo en cualquier mercado específico. El ‘fondo soberano’ es una etiqueta nominal que cubre tres tipos distintos de organización que distribuyen derechos de propiedad en diferentes formas. La primera actúa para intermediar por los estados de los problemas económicos asociados con exportaciones de recursos a gran escala. La segunda ayuda a los estados simultáneamente a desarrollar industria y una burguesía industrial. La tercera es un vehículo para la extracción de renta patrimonial mediante el capitalismo político. Por lo tanto, el presente aumento espectacular en número y existencias de fondos soberanos, no presagia una ruptura distinta (exagerada fácilmente) del neoliberalismo de las últimas dos décadas. 主权财富基金既不新鲜也不构成朝向国家控制的任何决定性转变。国家与市场是共同构成的，但国家之有权力正是因为它们有能力定义财产权，因而在公共和私人活动之间划定了边界。它们划定边界的方式决定了任一特定市场资本主义的性质。“主权财富基金”是一个名义标签，涵盖了三种不同的组织，它们以不同方式分配财产权。第一种组织的行动使国家因与大规模资源出口相联系的经济问题得到缓冲。第二种组织帮助国家同时发展工业和工业资产阶级。第三种组织是经由政治资本主义进行世袭寻租的工具。因此，当前主权财富基金数量和资金的显著增长并不预示着明显远离过去二十年（极易被夸大）的新自由主义。 국부 펀드는 고상한 것도 아니고 결정적으로 국가통제로의 전환을 구성하는 것도 아니다. 국가와 시장은 상호 구성적이지만, 국가는 재산권을 정의할 수 있는 능력 때문에 권력을 가지고 있고, 공적인 활동과 사적인 활동의 경계를 그을 수 있다. 경계를 긋는 방식이 모든 구체적인 시장에서 자본주의의 성격을 결정한다. ‘국부 펀드’는 재산권을 각기 다른 방식으로 분배하는 세 가지 조직 유형을 포괄하는 명목적인 이름이다. 첫째는 대규모 자원 수출과 관련된 경제문제로부터 국가를 완충시킨다. 둘째는 국가가 산업과 산업부르주아지를 동시에 발전시키는 것을 돕는다. 세째는 정치적 자본주의를 통해서 지대 를 추출하는 수단이다. 그리하여 현재 국부 펀드 수와 규모의 엄청난 증가가 지난 20년 동안의 신자유주의로부터 뚜렷하게 이탈하는 전조는 아니다.

American Sovereign Wealth

The rise of sovereign wealth funds signals a shift in the balance of economic and financial power in the world, with fast-rising powers creating sovereign wealth funds to invest billions in relatively new-found wealth. Discussions and analyses of sovereign wealth thus tend to focus on international relations and politics. But those who study the history of sovereign wealth funds recognize that many SWFs have existed for decades, and that some of these older SWFs are owned by U.S. states, thus also implicating federal relations and domestic politics. A great deal of research has focused on the international aspects of new, foreign sovereign wealth; this article instead examines older (but much less studied) domestic sovereign wealth funds, with a focus on their origins, purpose, and governance, as well as the role they play within a federalist system of government.

Sovereign Wealth Funds and Socially Responsible Investing: An Emerging Public Fiduciary

The dramatic growth of sovereign wealth funds (SWFs) in recent decades has made them a significant phenomenon in global financial markets and raised the prospect of more enlightened investing that respects the environmental underpinnings of economic prosperity. Until the Global Financial Crisis of 2008, the movement for socially responsible investing (SRI) had been the only noteworthy dissenting voice to the traditional complacency about the financial economy’s wider impacts. That financial calamity not only unveiled a systemic malaise in the financial alchemy of the global economy but also highlighted its social and environmental sequelae. The rise of SWFs, several of which are legally mandated to practice SRI, gives hope that states may reclaim some public oversight over finance capitalism. The purpose of this article is to investigate the governance of some SWFs with a view to assessing their capacity to contribute to environmental sustainability. As public financial institutions empowered by a broader conception of investment that takes account of social and environmental factors, SWFs have the incipient markings of ‘public fiduciaries’. SWFs could provide a novel way to interpolate the public trust environmental responsibilities of the state into the governance of the financial economy. This article focuses on the French and Norwegian SWFs, which arguably have the most comprehensive SRI practices of all SWFs. Both, however, have struggled to reconcile their ethical and financial mandates into a coherent investment philosophy. But their putative fiduciary responsibilities to society through an increasingly long-term investing perspective suggest a new normative direction to reconcile these tensions and to thereby help institutionalize the principles of intergenerational equity and sustainable development in the context of financial markets.

From national development to economic diplomacy? Governing Singapore's sovereign wealth funds

This paper examines the changing role and governance of Singapore's two sovereign wealth funds (SWFs) over the past three decades – from their earlier participation in domestic national development to their more active involvement in Singapore's economic diplomacy. Based on a variety of sources and data, I argue that these two SWFs, Temasek Holdings and the Government of Singapore Investment Corporation, are state-sanctioned means to secure the economic future of Singapore; they are not strategic devices developed by the Singapore government to pose geopolitical or economic threats on other states. Over time, their economic functions and strategic orientations have evolved with the city-state's dynamic developmental trajectories in the global economy. In the post-Cold War era of global finance, these state-controlled and professionally managed financial investment vehicles are more visible and active in their global expansion and acquisition trails. There are thus significant challenges to their strategic governance and international legitimacy in this new world order. This paper considers some of these challenges in light of recent development in the two SWFs and assesses their organizational and institutional responses to such challenges in today's competitive global economy. This case study of Singapore's SWFs illustrates the critical importance for understanding the rise of SWFs from small states in the evolving global system.

Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance

Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds (SWFs); governments have been using these special-purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter the transformative forces of global capitalism. Drawing on institutional theory and economic geography, I conceptualize the impetus behind the existence of SWFs, and conclude that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.

Rethinking the sovereign in sovereign wealth funds

Nation‐states are increasingly sharing sovereignty, both with other states and with supranational and non‐governmental institutions. This is partly due to a long period of economic and financial globalisation, which has undercut territorial notions of sovereignty and varieties of capitalism. In trying to understand this phenomenon, we are drawn to sovereign wealth funds (SWFs), as they offer a unique lens into the changing dynamics of contemporary capitalism, global economic integration and state sovereignty. Indeed, the SWF provides governments with a tool for both engaging with new spatial forms as well as resisting them. While politicians may conceptualise the objective of such funds in the most practical terms, they serve an under‐appreciated role in maintaining state sovereignty in a globalised world. In this paper, we build on emerging interdisciplinary scholarship concerning the rise of SWFs by broadening the interpretation of the utility of SWFs for the sponsoring government in relation to the practice and constitution of sovereignty, explicitly bridging political and economic geography. To this end, we offer an innovative, stylised typology of SWFs in relation to the state and sovereignty. The objective is to better understand the potential long‐term significance of SWFs and the factors that might underpin further development of new SWFs in different countries in the future. Moreover, we believe SWFs can be differentiated according to the role they play in sovereignty and what underlies their claims to legitimacy within their respective nation‐state. By understanding the rise and purpose of SWFs, we hope to better understand the sovereign in SWFs.

Rethinking the Sovereign in Sovereign Wealth Funds

Nation states are increasingly sharing sovereignty, both with other states and with supranational and non-governmental institutions. In large part, this is the result of a long period of economic and financial globalization, which has undercut territorial notions of sovereignty and varieties of capitalism. In trying to understand this phenomenon, we are drawn to sovereign wealth funds (SWF), as they offer a unique and powerful lens into the changing dynamics of contemporary capitalism, global economic integration and state sovereignty. Indeed, the SWF provides governments a tool for both engaging with new spatial forms as well as resisting them. While politicians may conceptualize the objective of such funds in the most practical terms, they serve an under-appreciated role in maintaining state sovereignty in a globalized (i.e. deterritorializing) world. In this paper, we build on emerging interdisciplinary scholarship concerning the rise of SWFs by broadening the interpretation of the utility of SWFs for the sponsoring government in relation to the practice and constitution of sovereignty. To this end, we offer an innovative, stylized typology of SWFs in relation to the state and its sovereignty. The objective is to better understand the potential long-term significance of SWFs and the factors that might underpin further development of new SWFs in different countries in the future. Moreover, we believe SWFs can be differentiated according to the role they play in sovereignty and what underlies their claims to legitimacy within their respective nation state. As such, by understanding the rise and purpose of SWFs, we hope to better understand the sovereign in SWFs.

Sovereign Wealth Funds: An Assessment

High oil prices and impressive economic performance in emerging markets have led to the accumulation of massive financial assets. These nations have created sovereign wealth funds (SWFs) to manage their growing assets. SWFs have provided significant liquidity to American and European financial institutions. The rise of SWFs in number and size has raised concern about their objectives and strategies. This study examines the role these state-owned funds play in the global markets and the efforts to regulate their activities. I argue that capital exporting and importing nations share common interests and reciprocal responsibility in ensuring global financial prosperity. Policy Implications • Sovereign wealth funds are currently important players in the international financial system and are projected to become even more influential in the future. • Sovereign wealth funds investments are driven more by commercial interests and less by political objectives. • The interests of capital exporting and capital importing nations are not mutually exclusive. Rather, both seek economic prosperity and political stability. • Too much regulation of sovereign wealth funds’ activities is likely to weaken cross-border trade and investment. • Sovereign wealth funds should gain the confidence of host countries by accepting a high level of transparency.

Sovereignty in the Era of Global Capitalism: The Rise of Sovereign Wealth Funds and the Power of Finance

Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds; governments have been using these special purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter global capitalism’s transformative forces. Drawing on institutional theory and economic geography, the paper conceptualizes the impetus behind SWFs’ existence, and concludes that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.

Investor States and the Rise of Sovereign Wealth Funds (SWFs)

SWFs manage large financial assets of sovereign states. The ownership by the governments has made it difficult to apply the conventional economic theories to SWFs. On the other hand, the economic nature of investment has made application of international relations theories to these funds more intricate. Almost all scholars (economists or political scientists) contend that the creation of SWFs has been a result of accumulation of foreign reserves. However, they diverge in their position with respect to the purposes of the sovereign funds. The economic view explains the purpose of these funds in terms of economic smoothing and shock absorbing. But economics is only one side of the story. States may have decided to establish sovereign funds for reasons other than economic smoothing or shock absorbing. The main argument here is that the economic view is insufficient in explaining operation and specifically evolution of these funds. In other words, the choices states make regarding the operation and management of sovereign funds can be based on reasons other than maintenance of the domestic economy. This research responds to an academically under-studied yet critical area, by first providing a systematic methodology for the study of these funds at the micro-level, and then applying this methodology to two prominent case studies, i.e., Norway and UAE. A better understanding of the functioning of SWFs is of high importance because it enables both the recipient states and the international community to better address the issues pertaining to SWFS such as governance, code of conduct, etc.

Tools of Survival: Sovereign Wealth Funds in Singapore and China

The rise of sovereign wealth funds (SWFs) as major investors in the global economy has raised worries that they serve the geopolitical ends of owner countries. However, given the paramount importance of surviving domestic political competitions, SWFs are likely also tools of domestic political survival. In examining the corporate governance and underlying political environment in which SWFs in Singapore and in China operate, this paper further examines the role of political unity in directing SWF behaviour in authoritarian regimes. The main finding is that a highly unified autocracy is more likely to direct SWFs to maximise long-term profit, while a fragmented one like China is more likely to treat its SWF as an arena for domestic political and bureaucratic infighting. SWFs operating in a fragmented regime are unlikely to make long-term profit and foreign policy objectives top priorities, and their behaviour can be highly unpredictable.