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Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy

June 4, 2008 Monitor Group

The recent, rapid rise of sovereign wealth funds (SWFs) has ignited controversy in many parts of the world. In OECD (Organisation for Economic Co-operation and Development) countries, many observers worry that SWFs could be instruments of state policy posing as investment vehicles. On the other side, representatives of nations with SWFs protest that their motives are purely financial, that the purpose of the funds is to increase national wealth, and that they wish to participate responsibly in the global financial system.

Although SWFs have been the subject of much public attention and recent research reports, most commentary and analysis considers the funds at an aggregated level and reaches similar observations and conclusions: that SWFs are targeting investments in OECD countries; that they wish to invest in politically sensitive sectors; that they prefer to acquire minority stakes; and that they are moving from conservative to higher-risk investments.

In our view, such conclusions — and the current debate itself — are not well informed by perspective on the actual behaviors of SWFs. Accordingly, Monitor Group launched an investigation into the funds, focusing on their behaviors and the responses of major constituencies around them.

This report is based on analysis of more than 1,100 publicly-reported SWF equity transactions between 1975 and March 2008, representing approximately $250 billion in value. Monitor researchers also interviewed a cross-section of fund managers, policy makers, investment professionals, and expert commentators and analysts.

Monitor followed up this report with an analysis of second-quarter activity by sovereign wealth funds, finding that SWFs are shifting investments away from the United States and Europe and into the Middle East and Asian economies.

Read more about our October 2008 report, "Sovereign Wealth Fund Investment Behavior: Analysis of SWF Transactions During Q2 2008."

REVISIONS TO OUR DATA
We constantly strive to ensure that the Monitor-FEEM SWF Transaction Database is as accurate as possible and have an ongoing revision process to ensure that the data reflects accurately the publicly reported investments made by the funds.

We have recently worked with a SWF reported on our database to revise and verify the data we held for them, and have reached out to other funds to invite them to help us verify the accuracy of the data. The historical data presented in this update reflects this ongoing process of revision.