Role Of Sovereign Wealth Funds Research Articles

SUSTAINABILITY TRANSPARENCY IN SOVEREIGN WEALTH FUNDS: BENCHMARK AND CASE STUDY APPROACH

The COVID-19 pandemic and the current food, energy, and safety crisis caused by the war in Ukraine strongly affected the existing gap in Sustainable Development Goals funding. Restoring global sustainability progress and the 2030 Agenda requires reshaping responsible investment architecture and rethinking the role of sovereign wealth funds as the largest investors in this process.The current study explores the ways in which the most transparent sovereign wealth funds act towards sustainability values and incorporate environmental, social, governance, and ethical criteria (ESGE) into their investment strategy, portfolio, and reporting. Also, 16 high-ranked funds by the Sustainability Transparency Index (Cavagnetto et al., 2022) were investigated by using the case study and benchmark analysis. Study results demonstrate the similarity of all funds disclosure within some questionnaire criteria like sustainability policy, scoring (voting) rules for decision-making, ESGE criteria, stakeholder engagements, and assurance of the financial information disclosed. Nevertheless, qualitative differences were identified between the sustainability transparency criteria of A and B-ranked funds. There is also huge variation in the implementation of funds’ ethical criteria, sustainability coherence, relevance of sustainability goals, disclosure of specific climate-related goals, and foundation membership criteria.Policy implications derived from the differences in sovereign funds' benchmarks are aimed at enhancing the sustainability context in funds’ operating frameworks, developing impact measurement metrics, prioritizing the most material stakeholder requests, sustainability verification procedures, and standardizing funds’ sustainability reporting. Specific channels, instruments, and regulatory measures towards greater funds’ sustainability transparency and their involvement in bridging the sustainable development funding gap may be the subject of further investigation.

The role of sovereign wealth funds in natural resource-rich countries: A systematic meta-narrative review

The role of sovereign wealth funds in natural resource-rich countries: A systematic meta-narrative review

The effect of covid-19 outbreak on foreign direct investment: do sovereign wealth funds matter?

This article investigates effects of COVID-19 outbreak on Foreign Direct Investment (FDI). Additionally, it examines how Sovereign Wealth Funds (SWFs) affect the COVID-19 – FDI nexus in 79 developed and developing countries. Unlike previous studies that incorporate an interaction term into the model to analyse the mediating effect of a given variable, in this paper we segment our sample into two sub-samples (countries with SWFs and countries without SWFs) and estimate the model for each sub-sample. Using a cross-sectional Ordinary Least Squares (OLS), results show that both the total number of death and the total cases are negatively correlated to FDI. Moreover, when considering the role of SWFs, regressions suggest that the COVID-19 outbreak reduces significantly FDI in countries without sovereign wealth funds, while its effect is non-significant in countries with SWFs.

Cyclical drivers of fiscal policy in sub-Saharan Africa: New insights from the time-varying heterogeneity approach

We extend the topical literature on the cyclical behavior of fiscal policy in developing countries subject to terms of trade cycles by applying the interactive fixed effects model that allow for unobserved time-varying heterogeneity in the impact of fundamentals. Based on a sample of 20 sub-Saharan African (SSA) countries from 1985 to 2017, our results support existing evidence about developing countries that fiscal policy is pro-cyclical in SSA countries. Whereas this pro-cyclicality is valid for government spending and fiscal balance, government revenue is slightly counter-cyclical. We also find that the pro-cyclicality of government expenditure and fiscal balance escalates during episodes of terms of trade booms. Our results make a strong case for the support of the pivotal role of Sovereign Wealth Funds, access to international financial markets, and flexible exchange rate regimes in reversing the pro-cyclical behavior of fiscal policy.

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.

The effect of sovereign wealth funds on corporations: Evidence of cash policies in Singapore

This paper studies the monitoring role of sovereign wealth funds (SWFs). By using unique dataset from one of the largest SWF: Temasek holdings, we find that SWF’s presence has a positive effect on cash holdings of portfolio companies. The effect is more pronounced for well-governed firms, indicating that Temasek increases corporate cash holdings through its active role in corporate governance. We further find supportive evidence that Temasek ownership affects cash holdings by hoarding excess cash and reducing capital expenditure, especially within firms with good governance. Temasek’s discerning effect on cash policies highlights the effective monitoring role of sovereign wealth funds.

Sovereign Wealth Funds: Russian and International Experience

Taking the Russian and the International experience, the principal aim of this study is to analyse sovereign wealth funds critically. It remains well known that the Russian National Wealth Fund is vital in the macroeconomic policy of the Russian state. After the abolition of the Reserve Fund in 2018, the Russian National Wealth Fund has to solve a wide range of tasks. In this context, one can argue that the sovereign welfare fund is a specialised monetary fund used to stabilise the state budget when government revenues decline. The welfare fund is also used to finance government needs in the long-term period. The role of sovereign wealth funds is growing in the world. They accumulate large amounts of financial resources. Sovereign wealth funds are founded in such countries where the budget strongly depends on market factors. In most cases, these factors are global commodity prices. The funds’ money is used to cover the deficit of the relevant budget in case of unfavourable market shifts. In the period of high commodity prices, the fund accumulates an excess of export earnings. Against this backdrop, the key purpose of the study is to evaluate the efficiency of managing the National Wealth Fund in the Russian Federation. The study was carried out using the methods of synthesis, analysis, economic analysis, as well as graphic methods, and the methods of comparisons and analogies, which in turn helps in evaluating the extent of efficiency of managing the Russian National Wealth Fund.. The research findings can be used when developing an investment strategy (investment portfolio) of the Russian National Wealth Fund, through which it can aim at balancing the insurance pension system, financing of the federal budget deficit, and co-financing of voluntary pension savings. In this regard, it is imperative for the fund to perform in productive investment activities.

The role of sovereign wealth funds in the economies of developing countries

In recent years, the financial resources of the leading developing countries have been actively exported both by the governments investing in foreign assets and by the corporate sector, in the form of direct investments in foreign enterprises and projects. In the context of increasing global competition for promising industrial assets, a growing number of developing countries now turn to providing government support through sovereign investment funds, partly replenished by foreign ex-change reserves or by the surplus in budgetary revenues from exports.

Promoting responsible sovereign lending and borrowing: the role of sovereign wealth funds

Purpose This paper aims to investigate the idea of building responsible borrowing and lending into sovereign wealth fund (SWF) decision-making. SWFs, which currently manage US$8 trillion in assets, are influential institutional investors, but their role in sovereign debt markets needs to be further explored. In this context, this paper aims to critically assess the linkages and convergences between the Santiago Principles on SWF and the United Nations Conference on Trade and Development (UNCTAD) principles on responsible sovereign lending and borrowing. Design/methodology/approach This paper draws on legal scholarship, reports, policy papers and other open-source data to explore the role of SWFs in sovereign lending, borrowing and debt restructuring. Findings Building responsible borrowing and lending into SWF decision-making is feasible and justified on the grounds of both ethics and public duty. It is also justified in financial terms because it would protect SWFs from irresponsible lending and borrowing practices at the micro level while contributing to global financial stability at the macro level. Originality/value This is the first comprehensive study to juxtapose two important normative processes, the Santiago Principles and the UNCTAD Principles.

Rethinking the role of sovereign wealth funds in small island developing states: evidence from Tuvalu and Kiribati

This paper examines the important role that can be played by sovereign wealth funds in financing of disaster risk management. The governments of Tuvalu and Kiribati are predicting climate change and natural disaster risks imposing increasing financial pressure on their economies. Having the required financial response in the aftermath of disasters is important to these low‐lying atolls. The long‐term sustainability of sovereign wealth funds in Kiribati and Tuvalu in contributing to ex post disaster risk management is examined.

The Role of Sovereign Wealth Funds in Supporting the General Budget of Selected Oil Countries (Norway, Algeria).

The Role of Sovereign Wealth Funds in Supporting the General Budget of Selected Oil Countries (Norway, Algeria).

The Role of Sovereign Wealth Funds in Promoting the External Stability of the Home Economy

<p>Sovereign Wealth Funds (SWFs) are currently playing an important role in the global economy. We investigated the role of SWFs in promoting the external stability of the home economy using a data set spanning 106 countries over the period (1997-2015), whereby Arellano- Bond dynamic panel data models were employed to assess the treatment effect of SWFs on both the level of the current account balance and its volatility. Empirical results revealed that SWFs can play an important role in smoothing the management of the current account balance in the long run. Nonetheless, commodity-based SWFs are expected to outperform non-commodity based SWFs in this respect. Our policy recommendation is that emerging economies should consider the establishment of SWFs to enhance the external stability of their home economies, allocating privatization proceeds to these investment vehicles to protect the rights of future generations in benefiting from them rather than directing such proceeds to finance current government expenditure and budget deficit. Finally, attention should be paid to the implementation of the generally accepted principles and practices when establishing SWFs to ensure their ability to function properly. </p>

Revisiting the Monitoring Role of Sovereign Wealth Funds: Evidence from a Quasi-Experimental Setting

This paper revisits the monitoring role of sovereign wealth funds (SWFs). SWFs are state-owned investment organizations and constitute a specific type of institutional ownership. Exploiting a shock in SWF investment holdings for the U.S. stock market and using standard Difference-in-Differences methodology, we provide three main findings. First, we document that treatment firms improve in terms of firm performance over a three-year period following the inclusion to the SWF investment portfolio. Second, and in line with an active and strategic role of SWFs, we show that especially treatment firms with governance and monitoring deficiencies prior to the SWF investment benefit subsequently in terms of firm performance. Third, we document that, among other things, a superior stock picking quality and with that a rather passive investment strategy does not explain our long- term performance findings. Overall, our study extends prior research by providing plausibly causal evidence on the long-term monitoring consequences of SWFs.

Do sovereign wealth funds dampen the negative effects of commodity price volatility?

This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981–2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the average impact is dampened if a country has a SWF and better institutional quality (hence a more stable government expenditure).

Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?

This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the average impact is dampened if a country has a SWF and better institutional quality (hence a more stable government expenditure).

Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?

This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the average impact is dampened if a country has a SWF and better institutional quality (hence a more stable government expenditure).

Sovereign Fund Selling, Market Volatility and Systemic Risk: Connections and Regulatory Possibilities

Sovereign wealth funds (SWF) have largely proven to be the gentle giants of the financial markets; they tend to be relatively patient, passive shareholders. In contrast to other activist hedge funds, when SWFs do engage with companies, they tend to work behind the scenes to maximize value for the long term. And yet, because they are funds owned by a sovereign, they often receive significant scrutiny, especially in developed markets, whenever they invest. To date, most of this scrutiny has occurred on the front end of investments, as host-country politicians and regulators question the motives of SWF investment in their markets. In some cases this scrutiny proves to be strict enough to encourage SWFs to look for other opportunities in other markets. As SWFs have continued to invest responsibly and regulators have become increasingly comfortable with SWF investment, the fear-mongering associated with SWF investment has decreased. Now, however, concerns have arisen not over how SWFs invest, but how they divest. Indeed, some reports seem to attribute depressed stock market prices and general market volatility to SWF divestment. A headline in Barron’s, for example, claimed that “Selling by sovereign wealth funds is a huge headwind for stocks,” and a headline for an article in the Financial Times declared that “Sovereign wealth funds drive turbulent trading.” Undoubtedly withdrawals from some SWFs — particularly Gulf SWFs — have had an impact on the markets, and particularly on stocks in which SWFs tend to overweight in their portfolios, such as stock in financial firms and some consumer goods companies. Perhaps the biggest impact has been felt by asset managers, which have seen their AUM deteriorate as SWFs withdraw funds.But how significant are SWF withdrawals from markets? Put in a slightly more pointed way, do SWF withdrawals create systemic risk for the markets? And if they do, what could be done about it? This brief analysis, prepared for the Universita Bocconi's Sovereign Investment Lab 2016 Annual SWF Report, attempts to work towards an answer to those questions, and in doing so, also attempts to provide some perspective on the larger debate in the appropriate role of SWFs in global capital markets.

The Impact of the Chinese Sovereign Wealth Funds (SWFs) On Sino-EU Relations: The Leverage between Investment and Human Rights

Abstract Sovereign wealth funds (SWFs) have been rapidly redefining the traditional paradigms, providing both much-needed capitals as well as posing particular challenges for policy makers. The role of SWFs, which are becoming increasingly involved in the global financial markets, has often been underestimated in the discourse of the protection of human rights. The tâtonnement processes of bargaining between home and host countries of SWFs indicate that the concern regarding human rights has maintained a sensible balance between protecting the rights of individuals and the benefits that large capital investments offer for both host and home countries. The challenge still remains as to whether the presumption that the promotion of SWFs investment is going to retard the promotion of human rights would not be rebutted even in terms of the new global regulatory framework.

The role of sovereign wealth funds as activist or passive fund managers

Sovereign Wealth Funds (SWF) have attracted a lot media attention with recent investments in publicly listed companies. Repeatedly, concerns have been raised, such as the fear of industrial espionage or geopolitical threats. We analyze whether SWF managers acquire stakes in foreign publicly listed firms 1) to play an active role which would support concerns or 2) passively select investments to increase the portfolio diversification, for instance. We find that SWF target firms are more profitable, pay higher dividends and have a higher financial stability than their industry peers. This is in line with SWF managers passively seeking for further portfolio diversification in foreign public equity markets. We cannot find an improvement in operating or market performance after the engagement of SWF. Overall, our results indicate strong evidence that SWF managers primarily act as passive investors instead of pursuing activism strategies like private equity funds.

An Analysis of Changing Trends in the International System of Capitalism Emphasizing the Role of Sovereign Wealth Funds

This paper will examine some fundamental shifts that have taken place in the international system of capitalism beginning with the Bretton Woods agreement and address the consequences these changes have had for both proactive and reactive governmental action, global trade, and economic integration. The analysis will utilize an interdisciplinary approach drawing upon the academic fields of Economics, Political Science, History, and Sociology. Additionally, I will draw selectively from portions of Regulation Theory and Social Structures of Accumulation Theory in order to show how crises of capital accumulation necessitate innovation in the global capitalistic system. Assumptions fundamental to structure of this paper include the premises that markets are institutions embedded in society, that global trade increases the interdependence of nations, that trade necessarily creates imbalances and those imbalances strain the interdependent relations between nations, and that globalization creates expected adherence to political and economic policies that potentially damage governmental legitimacy.I will demonstrate that the global capitalistic system creates antonymous pressures for nation states most readily identified by the competing ideological vantages points known commonly as Neo-liberalism and Keynesianism. The contradistinction underlying this supply-side/demand-side debate is evinced, in this paper, most poignantly in the financial system. This academic investigation hypothesizes that Sovereign Wealth Funds (SWFs) are instruments possessing the capabilities to alleviate these antithetic pressures. Although any determinative effects related to SWF proliferation concerning the stability of the international financial system remain ambiguous, this paper will conclude with normative suggestions as to how SWF investment activity can become a stabilizing force while warning of potential threats they hold inherent that can undermine the stability of the international financial system.