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Are Sovereign Wealth Funds' Investments Politically Biased? A Comparison with Mutual Funds


Rolando Avendano


Organization for Economic Co-Operation and Development (OECD)

Javier Santiso


ESADE Business School

December 18, 2009


Abstract:     
Global allocation of capital and fluctuations in asset prices are increasingly influenced by the activities of Sovereign wealth funds (SWFs). The Santiago Principles called for higher transparency, stressing that SWFs should exhibit clearer governance standards and sound portfolio management principles. Although asset allocation strategies for these funds are not known, SWFs are suspected to follow other factors besides risk-return objectives. This paper attempts to shed light on some of these concerns. The fear that sovereigns with political motivations use their financial power to secure large stakes in Western companies is shown to be unfounded. We find that SWF investment decisions do not differ greatly from those of other wealth managers. We propose to use mutual funds’ investments as a benchmark for SWF investment allocations. We collect data of SWF and mutual fund equity investment at the firm level and analyse these investments on a geographical and sector basis. Moreover, we compare target investments for these two groups by looking at the political regime in the sending and recipient country, under the hypothesis that this variable is not determinant for SWF investments. Finally, we provide a comparison of SWFs and other public funds based on governance features related to investment. We argue that double standards for regulation should be avoided and efforts to achieve higher transparency should be made by all investing actors.

Number of Pages in PDF File: 50

Keywords: Sovereign Wealth Funds, Asset Allocation, Regulation, Political Regimes, Benchmark

JEL Classification: F21, G11, G18, O57

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Date posted: April 18, 2010  

Suggested Citation

Avendano, Rolando and Santiso, Javier, Are Sovereign Wealth Funds' Investments Politically Biased? A Comparison with Mutual Funds (December 18, 2009). Available at SSRN: http://ssrn.com/abstract=1525545 or http://dx.doi.org/10.2139/ssrn.1525545

Contact Information

Rolando Avendano (Contact Author)
Organization for Economic Co-Operation and Development (OECD) ( email )
2 rue Andre Pascal
Paris Cedex 16, 75775
France
Javier Santiso
ESADE Business School ( email )
Mateo Inurria 27
Madrid, 28036
Spain
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