Sovereign Wealth Funds: Their Investment Strategies and Performance

Luc Laeven and Vidhi Chhaochharia

No 6959, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Sovereign wealth funds have emerged as an important investor of global equity, attracting growing attention. Despite concerns that sovereign wealth fund investments may serve political objectives and be in conflict with national interests, little is known about the investment objectives and performance of sovereign wealth funds. We collect new data on foreign equity investments by sovereign wealth funds. We find that sovereign wealth funds largely invest to diversify away from industries at home but that they do so predominantly in countries that share the same culture, suggesting their investment rules are not entirely driven by profit maximizing objectives. Share prices of firms respond favorably when sovereign investment funds acquire stakes, in part because these investments often take place when firms are in financial distress. However, the long-run performance of equity investments by sovereign wealth funds tends to be poor, consistent with imperfect portfolio diversification and poor corporate governance.

Keywords: Asset allocation; Corporate governance; Sovereign wealth funds (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-ara
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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