Fernandes: The Impact of Sovereign Wealth Funds on Corporate Value and Performance

From the paper:

According to the Sovereign Wealth Fund Institute, sovereign wealth funds (SWFs) today manage more than $6 trillion in assets, a number that can be put into perspective by considering that the hedge fund and private equity markets together account for less than $2 trillion. Given their extraordinary size and recent rates of growth, SWFs have received considerable attention in the business press. But most of the commentary has taken the form of anecdotal reporting, and evidence based on statistical analysis of large samples of SWFs has been in short supply. As a consequence, even the most basic questions about SWF investments remain unanswered, mostly owing to the difficulty of obtaining data about their investments. SWFs are unique institutions. Apart from their remark-able size and recent growth rates, SWFs have a number of other important differences from traditional large institutional investors.

Although the capital for sovereign wealth funds comes mainly from national governments, the mission of such funds, and the incentives of the people who make the investment decisions, reflect a peculiar mix of public-sector goals and private-sector methods. And thus, it is not clear a priori what the impact of SWFs on the performance and value of companies is most likely to be. According to their critics, SWFs are primarily a means for governments to carry out national “industrial policy” by channeling capital to favored industries. But according to their defenders, the talents and incentives of the people who manage SWFs tend to make the effects of such funds on targeted companies very similar to the effects of traditional large investors on their portfolio companies—namely, increases in operating efficiency and value. The objective of this article is to assess the overall impact of SWFs on the companies they invest in and to identify the channels they use to affect corporate value and performance.

An important paper–highly recommended!

Available for download here (paywall).