Sovereign Wealth Funds
How these funds actually invest and what governs them; NBIM as benchmark.
Summary
The reference has not verified this book in detail; the summary states only what the title, author and subject establish.
Balding, an academic who has written on Chinese finance, wrote an analytical treatment of sovereign wealth funds covering their origins, their governance, their investment behaviour and the political reaction to them.
The reference has not verified the book's chapters in detail. The subject covers state-owned investment vehicles funded either by commodity revenue, as in Norway, the Gulf states and Russia, or by accumulated foreign exchange reserves, as in China and Singapore. The analytical questions the literature addresses include what these funds are for, since stabilisation against commodity price volatility, intergenerational saving and strategic industrial investment are different objectives requiring different portfolios; how their governance is structured and whether the mandates are enforceable; how transparent they are, with Norway at one extreme and several Gulf funds at the other; and whether their investments are commercially or politically motivated, which drove the political reaction in recipient countries after several high-profile stakes in Western financial institutions during 2007 and 2008.
Balding's own work has generally been sceptical of official Chinese financial data and of the claims made about state investment vehicles' performance and independence.
The field has changed substantially since 2012. Sovereign funds have grown, several have moved from passive portfolios into direct investment, venture capital and private equity, and the Saudi Public Investment Fund in particular has become a large direct investor. Readers should verify current structures and asset levels against current sources.
Key takeaways 6
- Sovereign wealth funds are funded either by commodity revenue or by accumulated foreign exchange reserves, and the two produce different constraints.
- Stabilisation, intergenerational saving and strategic investment are different objectives that require different portfolios and are often conflated.
- Governance and mandate enforceability vary enormously, with Norway's transparency at one extreme and several funds disclosing almost nothing.
- Recipient country political reaction to sovereign investment intensified after state funds took stakes in Western banks during the crisis.
- Whether these funds invest commercially or politically cannot be determined from disclosure in most cases.
- A fund drawing on commodity revenue faces withdrawals exactly when its assets are likely to be depressed, which constrains its risk taking.
Who should read it
Analysts and fundraisers dealing with state investors who need the analytical framework, verified against current fund structures and mandates.
Where it sits in the reference 3
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