The Investment Strategies of Sovereign Wealth Funds

55 Pages Posted: 31 Mar 2009

See all articles by Shai Bernstein

Shai Bernstein

Stanford Graduate School of Business

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 29, 2009

Abstract

This paper examines the direct private equity investment strategies across sovereign wealth funds and their relationship to the funds' organizational structures. SWFs seem to engage in a form of trend chasing, since they are more likely to invest at home when domestic equity prices are higher, and invest abroad when foreign prices are higher. Funds see the industry P/E ratios of their home investments drop in the year after the investment, while they have a positive change in the year after their investments abroad. SWFs where politicians are involved have a much greater likelihood of investing at home than those where external managers are involved. At the same time, SWFs with external managers tend to invest in lower P/E industries, which see an increase in the P/E ratios in the year after the investment. By way of contrast, funds with politicians involved invest in higher P/E industries, which have a negative valuation change in the year after the investment.

Keywords: investments, public finance, private equity, general finance, countries & regions, financial services

JEL Classification: G23, G24, H11, G11, G15

Suggested Citation

Bernstein, Shai and Lerner, Josh and Schoar, Antoinette, The Investment Strategies of Sovereign Wealth Funds (March 29, 2009). Harvard Business School Finance Working Paper No. 09-112. Available at SSRN: https://ssrn.com/abstract=1370112 or http://dx.doi.org/10.2139/ssrn.1370112

Shai Bernstein

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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