Sovereign Wealth Fund Portfolios

49 Pages Posted: 27 Mar 2011 Last revised: 29 Sep 2011

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: February 1, 2011

Abstract

Using a novel, hand-collected dataset of Sovereign Wealth Fund (SWF) investments in public equities, private firms, and real estate, we establish what SWF portfolios look like. SWF allocations are balanced across risky asset classes, very home-region biased, and very biased toward certain industries, in particular, toward finance (owning 4.8% of world equity) and transportation, energy and telecommunication. SWFs invest actively (with control rights) in both public and private sectors, but mainly in these industries in their home regions. We use these allocations to understand better the objectives that drive SWF investment decisions. We find evidence for financial portfolio investor benchmarking and for hedging of income covariance risk. We introduce and test an industrial planning hypothesis as an alternative objective and find this has considerable explanatory power. We find that both measures to capture financial portfolio and industrial planning objectives together explain 14.4% of SWF portfolio variation. Of this, industrial planning accounts for 45%. There is significant variation in the power of industrial planning objectives across SWFs revealing important heterogeneity in this investor class. Industrial planning helps to explain active ownership, predicting higher ownership stakes.

Suggested Citation

Dyck, I. J. Alexander and Morse, Adair, Sovereign Wealth Fund Portfolios (February 1, 2011). Chicago Booth Research Paper No. 11-15; MFI Working Paper No. 2011-003; Rotman School of Management Working Paper No. 1792850. Available at SSRN: https://ssrn.com/abstract=1792850 or http://dx.doi.org/10.2139/ssrn.1792850

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
416-946-0819 (Phone)

Adair Morse (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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