The Investment Strategies of Sovereign Wealth Funds

The Investment Strategies of Sovereign Wealth Funds

By
Shai Bernstein, Josh Lerner, Antoinette Schoar
Journal of Economic Perspectives. March
2013, Vol. 27, Issue 2, Pages 219-238

Sovereign wealth funds have complex objective functions and governance structures where return maximization and strategic political considerations may conflict. SWFs with greater involvement of political leaders in fund management are more likely to support domestic firms and invest in segments and markets with higher P/E levels, especially in their domestic investments. But these investments see a subsequent reversal in P/E levels suggesting that the funds engage in poor market timing. The opposite patterns hold for funds that rely on external managers. Funds that have stated domestic development goals are more likely to invest at home, especially if politicians are involved.

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