The Investment Strategies of Sovereign Wealth Funds
Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-or...
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| Format: | Article |
| Language: | en_US |
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American Economic Association
2015
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| Online Access: | http://hdl.handle.net/1721.1/99146 https://orcid.org/0000-0002-3658-9131 |
| _version_ | 1826200072789950464 |
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| author | Bernstein, Shai Lerner, Josh Schoar, Antoinette |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Bernstein, Shai Lerner, Josh Schoar, Antoinette |
| author_sort | Bernstein, Shai |
| collection | MIT |
| description | Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-order importance for these funds: that is, the direct involvement of political leaders in the management process. We show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns. Sovereign wealth funds face several other issues, like how best to cope with demands for transparency, which can allow others to copy their investment strategies, and how to address the problems that arise with sheer size, like the difficulties of scaling up investment strategies that only work with a smaller value of assets under investment. In the conclusion, we discuss how various approaches cultivated by effective institutional investors worldwide -- from investing in the best people to pioneering new asset classes to compartmentalizing investment activities -- may provide clues as to how sovereign wealth funds might address these issues. |
| first_indexed | 2024-09-23T11:30:43Z |
| format | Article |
| id | mit-1721.1/99146 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T11:30:43Z |
| publishDate | 2015 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/991462022-09-27T20:00:34Z The Investment Strategies of Sovereign Wealth Funds Bernstein, Shai Lerner, Josh Schoar, Antoinette Sloan School of Management Schoar, Antoinette Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-order importance for these funds: that is, the direct involvement of political leaders in the management process. We show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns. Sovereign wealth funds face several other issues, like how best to cope with demands for transparency, which can allow others to copy their investment strategies, and how to address the problems that arise with sheer size, like the difficulties of scaling up investment strategies that only work with a smaller value of assets under investment. In the conclusion, we discuss how various approaches cultivated by effective institutional investors worldwide -- from investing in the best people to pioneering new asset classes to compartmentalizing investment activities -- may provide clues as to how sovereign wealth funds might address these issues. Harvard Business School. Division of Research 2015-10-05T16:37:36Z 2015-10-05T16:37:36Z 2013-02 Article http://purl.org/eprint/type/JournalArticle 0895-3309 1944-7965 http://hdl.handle.net/1721.1/99146 Bernstein, Shai, Josh Lerner, and Antoinette Schoar. “The Investment Strategies of Sovereign Wealth Funds.” Journal of Economic Perspectives 27, no. 2 (February 2013): 219–238. © 2013 American Economic Association https://orcid.org/0000-0002-3658-9131 en_US http://dx.doi.org/10.1257/jep.27.2.219 Journal of Economic Perspectives Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use. application/pdf American Economic Association American Economic Association |
| spellingShingle | Bernstein, Shai Lerner, Josh Schoar, Antoinette The Investment Strategies of Sovereign Wealth Funds |
| title | The Investment Strategies of Sovereign Wealth Funds |
| title_full | The Investment Strategies of Sovereign Wealth Funds |
| title_fullStr | The Investment Strategies of Sovereign Wealth Funds |
| title_full_unstemmed | The Investment Strategies of Sovereign Wealth Funds |
| title_short | The Investment Strategies of Sovereign Wealth Funds |
| title_sort | investment strategies of sovereign wealth funds |
| url | http://hdl.handle.net/1721.1/99146 https://orcid.org/0000-0002-3658-9131 |
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