SWFs’ Changing Mandate

Ashby Monk

The financial crisis has changed some SWFs’ investment mandates. Whereas most–if not all– used to be in the business of investing government owned financial assets abroad, today many are increasingly being asked to invest these assets domestically. Struggling local economies and firms demand large capital injections, which in many cases can come only from SWFs.  

This point of view fits with what Knowledge at Wharton wrote today:

“In the wake of the financial meltdown, most of the SWFs in the Middle East have either stopped investing or have become very risk-averse. Instead, they are now turning inward to stimulate their own slumping economies — and thus reducing purchases of foreign assets. “

This is to be expected–isn’t this why these funds were set up in the first place?

It will be really interesting to see what happens to SWFs after this crisis. First, I expect we’ll see a ramp up in SWF assets under management much the way we saw a ramp up in central bank’s foreign exchange reserves coming out of the Asian financial crisis in ’97. Second, these assets will then once again be invested internationally so as to ensure that resources are available if and when they are needed (as they are today).

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About

This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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