The Four Benchmarks of Sovereign Wealth Funds
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
September 21, 2010
The benchmarks of a Sovereign Wealth Fund (SWF) should take into account the economic and political context behind the creation of the SWF and the role the SWF plays as one part of a government’s overall policy. The first benchmark of legitimacy ensures that the capital of the SWF is not immediately spent and instead, is gradually disbursed across the present and future generations. The second integrated policy benchmark recognizes the implicit liabilities of the SWF by taking into account its role in government fiscal and other macro policies. Meeting these two standards should be a prerequisite before setting the performance benchmark, which goes hand in hand with the governance structure of the SWF. Finally, the long-term horizon requires a SWF to consider the long-run equilibrium benchmark of the markets in which the SWF invests and the long-term externalities affecting the SWF.
Number of Pages in PDF File: 29
Keywords: legitimacy, performance, management, government, equilibrium, long run
JEL Classification: E21, E61. F30, F40, G11, G18, G20, G30, H10, H60, M5, O11
Date posted: September 22, 2010