Emmanuel Guerin has a nice commentary at Project Syndicate on how SWFs can and should change their investment patterns:
SWFs have comparative advantages over other kinds of institutional investors. Unlike insurance companies and pension funds, they have no long-term debt or future payment obligations. And, as public investors, they are likely to have a better understanding of investment projects that depend on public policy. Given these advantages, SWFs play a large – and growing – role in infrastructure finance.
New financial regulations – Basel 3 for banks and Solvency 2 for insurers – are reinforcing these advantages. While the regulations are likely to reduce the likelihood and impact of financial crises, they will also make long-term loans more expensive and investments in illiquid assets riskier.
As a result, banks and insurers might disengage from infrastructure finance, creating more opportunity at lower cost for SWFs. Given that infrastructure is crucial to sustainable development, this could eventually lead SWFs to become key players in this area.