Sovereign Wealth Fund Investment Patterns and Performance

William L. Megginson, Bernardo Bortolotti (), Veljko Fotak and William Miracky
Additional contact information
William L. Megginson: Price College of Business
Veljko Fotak: University of Oklahoma and Fondazione Eni Enrico Mattei
William Miracky: Monitor Group
Authors registered in the RePEc Author Service: Daniella Natascha Wondel

No 2009.22, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average -15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $57billion on their holdings of listed stock investments alone through March 2009.

Keywords: Sovereign Wealth Funds; International Financial Markets; Government Policy and Regulation (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-ara, nep-cfn and nep-sea
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2009.22

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