Sovereign wealth funds (SWFs): a few observations

Citation

Yadav, S.S. and Shankar, R. (2013), "Sovereign wealth funds (SWFs): a few observations", Journal of Advances in Management Research, Vol. 10 No. 2. https://doi.org/10.1108/jamr.2013.42610baa.001

Sovereign wealth funds (SWFs): a few observations

Sovereign wealth funds (SWFs): a few observations

Article Type: Editorial From: Journal of Advances in Management Research, Volume 10, Issue 2.

With time, new research areas keep evolving. We keep discussing these in our editorial and hope that it may act as a trigger for new research. One such area is SWFs. Generally, in the past, governments have been investing in economic activity through public sector enterprises within their country. In most countries, public and private enterprises have existed side by side. In the developed countries, the contribution of private sector is much more than that in developing countries. The investment of the governments is limited to creation of public sector enterprises within the geographical boundaries of the country. However, a new form of investment has been gaining currency for some time now. That is the investment through SWFs.

SWFs are investment funds that are established and owned by governments of different countries. The funds may be created from trade surpluses, foreign currency reserves, budgetary surpluses or commodity exports. Some of the features of SWFs are as follows: they are owned by a sovereign government; they are managed independently of other state financial institutions; and they make investment in foreign countries in a significant proportion.

Some of the major SWFs in the world currently in operation are Abu Dhabi Investment Authority (United Arab Emirates); Government Pension Fund-Global (Norway); Kuwait Investment Authority (Kuwait); China Investment Company (China); Temasek Holdings (Singapore); Future Fund (Australia); Libyan Arab Foreign Investment Company (Libya); and Korea Investment Corporation (Korea), etc.

Initially, they came into existence in 1950s in very small size. But, of late, they have grown to be big. Currently, SWFs manage approximately $6 trillion and the size is increasing by the day. As the funds under SWFs have grown, so has the geographical spread of their investments. Apart from the developed countries, now, they invest in significant amounts in emerging economies such as Brazil, Russia and India as well as in Africa.

SWFs invest in different assets with different objectives. Foremost among them is to invest in the assets that are of strategic importance to their home country. These SWFs would typically make larger investments and would be actively involved in the management of the companies in which they invest.

Another objective can be to diversify globally to be able to have returns that outperform some benchmark index or indices. With this objective in mind, the SWFs invest in a wide range of assets such as equities, fixed income securities, real estate, infrastructure and even in hedge funds.

Still another objective can be to promote a country's role in the global financial market. Korea Investment Corporation is said to have been set up with this goal, among others.

Though amounts being managed by these funds are huge, not many countries have yet established them. Some of them are already mentioned above. Other countries, like India, may also establish their SWFs in future. Be that as it may, it would be a good idea that researchers start looking at the functioning of SWFs, with different research questions in mind. For example, one may examine whether the SWF investments have indeed strategic goals or they are meant purely to diversify risk and to outperform well-known index benchmark returns. It would be interesting to see how countries, which already have long standing SWFs are able to mix the politico-strategic considerations with considerations of market efficiency and return, if at all, they do so.

This issue of Journal of Advances in Management Research (JAMR) contains a few selected and peer reviewed papers from International Conference of Society of Operations Management, which took place in December 2012 at IIT Delhi, India. We hope that by publishing these papers in JAMR, we can provide a wider dissemination of knowledge created through research.

Surendra S. Yadav and Ravi ShankarDepartment of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi, India