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Article
Publication date: 15 February 2013

Salar Ghahramani

The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance.

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Abstract

Purpose

The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance.

Design/methodology/approach

The study highlights the relationships between SWFs and corporate governance and also applies eight antecedents/determinants of institutional activism to analyze whether SWFs have a predisposition for shareholder activism.

Findings

The study only finds two instances of SWF activism. Additionally, it finds that despite their mostly passive investments, SWFs possess a natural tendency toward shareholder activism. Some are more likely to engage in activism than others, however. SWFs with a higher proportion of their assets invested in equities, those with portfolios fully or partially constructed to emulate the broader financial markets through indexing, and those that depend less on external fund managers are the likeliest candidates for activism. The study also finds that the regulatory environment can curb the natural SWF inclination for activist behavior.

Research limitations/implications

Due to the lack of transparency within the SWF universe, this study largely depends on the limited data available for sovereign wealth funds.

Practical implications

Given the growing importance of SWFs, managers, directors, and policymakers must assess SWF activism, its influence on corporate governance, and its implications for public policy deliberations.

Originality/value

This project, to the best of the author's knowledge, is the first study that applies tested financial models to SWFs in order to determine if they have inherent activist tendencies.

Details

Corporate Governance: The international journal of business in society, vol. 13 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Book part
Publication date: 27 September 2011

Rolando Avendaño and Javier Santiso

Purpose – To study the allocation in equity markets of sovereign wealth funds’ (SWF) investments with respect to other institutional investors. To analyze the role of…

Abstract

Purpose – To study the allocation in equity markets of sovereign wealth funds’ (SWF) investments with respect to other institutional investors. To analyze the role of political regimes in the sending and recipient countries as a determinant of the allocation of SWF investments.

Methodology/approach – We use mutual funds’ investments as a benchmark for SWF investment allocations. We collect data of SWF and mutual fund equity investments at the firm level and analyse them on a geographical and sector basis. We compare target investments for these two groups by looking at the political regime in the sending and recipient country, using different political indicators (Polity IV, Bertelsmann). We provide a comparison of SWFs and pension funds based on governance features related to investment.

Findings – We find that the fear that sovereigns with political motivations use their financial power to secure large stakes in OECD countries is not confirmed by the data. SWF investment decisions do not differ greatly from those of other wealth managers. Although there can be differences in the allocation, political regimes in the recipient countries do not play a role in explaining the allocation of sovereign wealth funds.

Social implications – Investment from public institutions, such as sovereign wealth funds, can have significant implications at the economic and social level. Sovereign funds are potential sources of capital for emerging economies, and therefore can enchance economic growth. It is important to understand to what extent public institutional investors behave differently from private investors. The “political bias” is not a relevant factor for sovereign funds, or for other institutional investors, for allocating their capital. More often than not, their asset allocation strategies converge with other large investors, these being driven by financial and not political bias.

Originality/value of the chapter – The chapter is an original contribution providing a firm-level analysis of equity holdings for two groups of institutional investors. Moreover, it emphasizes the political dimension of institutional investments, highlighting the priorities and constraints of public investors participating in financial markets. The chapter suggests that SWFs do not discriminate by the political regime of the recipient country in their asset allocation.

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

Keywords

Book part
Publication date: 27 September 2011

Narjess Boubakri, Jean-Claude Cosset and Nabil Samir

Purpose – Run a comparative analysis between investments of sovereign wealth funds (SWFs) and mutual funds, focusing on firm-level, country-level, and institutional…

Abstract

Purpose – Run a comparative analysis between investments of sovereign wealth funds (SWFs) and mutual funds, focusing on firm-level, country-level, and institutional variables.

Methodology/approach – We use a hand-collected sample of 1,845 acquisitions around the world over the last 25 years (251 for SWFs and 1,594 for mutual funds). We then run univariate parametric and nonparametric tests to assess the differences in the investments of both subsamples.

Findings – We review the literature on the determinants of SWFs' investment decisions. Our analysis adds to the scarce available literature on the investment decisions of SWFs and their comparison with other institutional investors. Our results show that, compared to mutual funds, SWFs indeed exhibit different preferences: for instance, SWFs prefer to acquire stakes in larger, less liquid companies which are financially distressed but which also have a higher level of growth opportunities. They also prefer less innovative firms with more concentrated ownership, which are located in less developed but geographically closer countries with whom they do not necessarily share cultural and religious backgrounds.

Social implications – Our results are important for practitioners and firms seeking to attract a given type of institutional investment. They also add insights to the debate on the “hidden” political objectives behind SWF investments in the Western world.

Originality/value of paper – This is the first attempt to empirically assess the differences in the investment choices of SWFs and mutual funds.

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

Keywords

Article
Publication date: 18 June 2019

Georgios Pavlidis

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…

Abstract

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.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Open Access
Article
Publication date: 15 August 2019

Salman Bahoo, M. Kabir Hassan, Andrea Paltrinieri and Ashraf Khan

The purpose of this paper is to propose a model of the Islamic sovereign wealth funds (ISWFs) based on Islamic finance principles to modify the precarious image of SWFs

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Abstract

Purpose

The purpose of this paper is to propose a model of the Islamic sovereign wealth funds (ISWFs) based on Islamic finance principles to modify the precarious image of SWFs from Muslim countries. The Shariah laws are the cardinal direction for this study.

Design/methodology/approach

The authors applied a qualitative research technique that consists of three approaches: exploratory case study approach to critically examine and rank the existing status of SWFs; descriptive analysis; and content analysis to present a model of ISWFs in comparison of conventional SWFs.

Findings

The authors propose a model of the “Islamic Sovereign Wealth Funds” based on four key pillars: the major Shariah principles; the Islamic corporate governance framework; the Islamic transparency and disclosure framework; and the Islamic corporate social responsibility framework. Furthermore, the authors argue that the potential effect of the ISWFs on Islamic finance and economy will be positive.

Research limitations/implications

The model is an initial work and idea to convert SWFs from Muslim countries into ISWFs, which required an in-depth policy review by governments.

Practical implications

The findings of the paper are useful for policymakers and governments of the Muslim countries to overcome the issues and criticism on SWFs by converting them in ISWFs.

Originality/value

This paper contributes to the literature related to Islamic finance and sovereign wealth fund by presenting a first model of ISWFs for Muslim countries.

Details

Islamic Economic Studies, vol. 27 no. 1
Type: Research Article
ISSN: 1319-1616

Keywords

Article
Publication date: 29 September 2021

Roshni Garg and Abha Shukla

This paper aims to systematically review all available evidence on the implications of sovereign wealth funds (SWFs) for various stakeholders (recipients of sovereign

Abstract

Purpose

This paper aims to systematically review all available evidence on the implications of sovereign wealth funds (SWFs) for various stakeholders (recipients of sovereign investment, home countries, which incorporate SWFs and the world at large) and offer future research directions.

Design/methodology/approach

A systematic literature review (SLR) technique is used to review 102 handpicked articles for the period 2005‐2019.

Findings

This review reveals that the literature on the impact of SWFs emerged only during the financial crisis of 2008–2011 and much of it is qualitative in nature. The literature is lopsidedly focused on the impact of SWFs on target firms and there has been a limited empirical investigation of the impact on other stakeholders. There is a lack of consensus in several areas, which calls for additional research. Few areas, which have not been addressed in the literature and can be taken up by future researchers include the impact of SWFs on macroeconomic fundamentals and stock markets of recipient countries, especially emerging economies; implications of SWFs for alternative asset classes; impact on the welfare of citizens and internationalization strategies of home countries; impact on initial public offerings and unlisted corporations; and impact on innovativeness, efficiency and corporate governance practices of target firms.

Originality/value

To the best of the authors’ knowledge, this is the first paper to use the SLR technique to review the literature on SWFs. It considers the impact of SWFs on all stakeholders and covers both qualitative and quantitative literature published over a long period of 2005‐2019. It also systematizes all available evidence on this theme and identifies important research gaps, which may be helpful for academicians, practitioners and policymakers.

Details

Qualitative Research in Financial Markets, vol. 13 no. 5
Type: Research Article
ISSN: 1755-4179

Keywords

Open Access
Article
Publication date: 28 July 2021

Sivakumar Velayutham and Rashedul Hasan

The purpose of this paper is to critically discuss the participation of sovereign wealth funds (SWFs) in the corporate social responsibility (CSR) programmes. Sovereign

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Abstract

Purpose

The purpose of this paper is to critically discuss the participation of sovereign wealth funds (SWFs) in the corporate social responsibility (CSR) programmes. Sovereign wealth funds in emerging economies are often involved in corporate social responsibility. However, the 1 Malaysian Development Berhad (1MDB) scandal illustrates the possible use of SWF as a vehicle for corruption and abuse.

Design/methodology/approach

The primary objective is to develop good governance practices of CSR by SWFs that could limit corrupt practices. A case study approach is adopted to investigate the CSR involvement of two SWFs – Norway’s Government Pension Fund Global (GPFG) and Abu Dhabi Fund for Development (ADFD).

Findings

The finding shows that SWFs should not be directly involved in CSR. It is proposed that independent Non-government Organisations (NGOs), through a competitive funding model, could serve the CSR purpose of SWFs more effectively and bring socio-economic changes in emerging economies.

Originality/value

The funding model identifies the expected outcomes, priorities and uses of the funds. The funding committee should also be independent of the Board and transparent in its allocations.

Details

Public Administration and Policy, vol. 24 no. 2
Type: Research Article
ISSN: 1727-2645

Keywords

Article
Publication date: 10 October 2008

Dilip K. Das

Over the last two decades global cross‐border investment has increased. State‐owned and managed, sovereignwealth funds (SWFs), largely from the emerging‐market economies…

Abstract

Purpose

Over the last two decades global cross‐border investment has increased. State‐owned and managed, sovereignwealth funds (SWFs), largely from the emerging‐market economies, have started playing a decisive role in underpinning, sustaining and expanding financial globalization. This paper aims to provide the reader with basic conceptual strands on the SWF, their genesis, coming into prime and recent spurt in their operations.

Design/methodology/approach

The paper focuses on defining SWFs and tracks their origin and growth. It explores the present and future market size of SWFs and examines the ramifications of this group of large institutional investors. It also answers the query whether anxieties about their operations are exaggerated and attempts to provide answers regarding some of the prickly policy questions.

Findings

The paper finds that, although they are an instrument of enhancing liquidity and financial resource allocation in the international capital market, they have become a source of controversies and threaten and escalation in financial protectionism.

Originality/value

The paper focuses on the concept of SWFs and the recent spurt in their activities and significance.

Details

International Journal of Development Issues, vol. 7 no. 2
Type: Research Article
ISSN: 1446-8956

Keywords

Article
Publication date: 13 July 2015

Chen Meng

The purpose of this paper is to address a research gap by providing a comprehensive survey of sovereign wealth funds (SWFs) as international institutional investors and…

Abstract

Purpose

The purpose of this paper is to address a research gap by providing a comprehensive survey of sovereign wealth funds (SWFs) as international institutional investors and clarifying the definition of SWFs. By doing so, this paper aims to provide a balanced set of policy prescriptions towards SWFs.

Design/methodology/approach

This paper conducted a comprehensive survey of world major 24 SWFs with assets under management of 500 million USD between 2008 and 2012. Key dimensions include objectives, funding and governance, asset allocation and investment activities.

Findings

SWFs are planning institutions with management direction. They present great variety in terms of funding mechanism, governance, asset allocation and investment strategies, but they in essence pursue financial returns. It is not evident that SWFs are primarily motivated by political objectives and distinctively different from other international institutional investors. Difficulty in interpreting SWFs should not lead to the imposition of constraints on SWFs.

Research limitations/implications

More in-depth and dynamic analysis of SWFs requires better data access. For such a purpose, case studies and longitudinal studies should be adopted, with particular emphasis on comparing SWFs with different types of financial institutional investors as well as typical state-owned enterprises (SOEs) and multinational enterprises.

Practical implications

This study is trying to demystify SWFs based on a comprehensive survey. As a result, this paper may assist investors, policy-makers and regulators to gain a better understanding of SWFs, their investment behaviours and rationales behind.

Social implications

SWFs like other long-term capital is important for economic and job growth. To attract long-term investments, creating an open, unbiased and welcoming investment environment is the key.

Originality/value

The contribution of this paper is that we provide a deeper understanding of the strategy and empirics of SWF operations. First, after a clearer definition of the phenomenon of SWFs, we can explain their investment strategies and behaviour as firms. Second, we can derive rational policy prescriptions, and third, we can propose a research agenda that will further deepen our understanding of SWFs and the appropriate policy prescriptions.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 18 July 2011

Ruth Rios‐Morales, Mohamed Ramady and Louis Brennan

The purpose of this paper is to analyze the role of sovereign wealth funds (SWFs) in sustaining global economies. The subject of SWFs has increasingly garnered the…

Abstract

Purpose

The purpose of this paper is to analyze the role of sovereign wealth funds (SWFs) in sustaining global economies. The subject of SWFs has increasingly garnered the concerns of policymakers, market players and scholars for two main reasons: First, these funds represent the largest concentration of capital that the world has ever known, with the Arabian Gulf SWFs becoming increasingly important global players, especially during the most recent financial crises. Second, there is the dominant role of national governments in the management of these colossal funds. This paper assesses the contrasting perspectives on SWFs and analyzes the role they can play in sustaining the global economy by engaging in foreign direct investment.

Design/methodology/approach

Both descriptive analysis and comparative analysis are used.

Findings

SWFs are large and tend to be long‐term investors and have characteristics that are compatible with foreign direct investment (FDI). There is a role for them in sustaining the global economy via FDI. This analysis suggests that only 11 percent of SWFs' investment in FDI is needed in order to counteract the forecast decline of FDI. Initiatives such as the recently established Santiago principles can help to allay the concerns of host and investor nations. This paper concludes that SWFs should be welcomed by market players and policy makers as tools of economic growth.

Practical implications

Current trends indicate that SWFs are playing an important role as a source of foreign investment, and are also reducing the impact of liquidity pressures in the international banking system. The main driving force of their investing in the global market is in securing higher returns. However, there has been unease among Western countries that have concerns that governments could use SWFs to seize control of strategic companies in sensitive sectors, for their own purposes.

Originality/value

The paper assesses the potential contribution of SWFs to FDI and highlights aspects related to fostering a code of conduct that can allay concerns around areas such as transparency, and the extent to which restrictions should be imposed by host governments.

1 – 10 of 79