Determinants of Sovereign Wealth Fund Investment in Private Equity versus Public Equity

Abstract

This paper examines the investments of 19 sovereign wealth funds (SWFs) in 424 firms (both public and private) around the world from 1991 through 2010. The data indicate that SWFs, similar to other institutional investors, are less likely to invest in private equity versus public equity internationally. However, the economic significance of this impact is surprisingly low. Unlike other institutional investors, SWFs are more likely to invest in private equity versus public equity in target nations where investor protection is low and where the bilateral political relations between the SWF and target nation are weak. Surprisingly, cultural differences play a marginally positive role in the choice to invest in private equity investment outside of a SWF’s own sovereign nation. Comprehensively, we find that SWFs act distinctively from other traditional institutional investors when investing in private equity.

Keywords: sovereign wealth fund, private equity, international financial markets, legality, government policy, political relations and regulation