SWF Semantics

Ashby Monk

Here is a thought experiment: Let’s assume I have just introduced you to four of my employees, Adam, Andy, Ian and Mary. These four individuals are strategic investors and receive their capital and investment mandates from me directly. After some brief conversation, I make a point of saying, ‘Oh by the way, I can assure you that Ian and Mary invest on a purely commercial basis, so there is no need to worry about political investing with them.’ You might be tempted to ask, ‘What about Adam and Andy?’ To which I reply, ‘As a matter of policy, I don’t disclose any information about Adam or Andy’s investments…’

Based on the above information, what would you think about Adam or Andy? Would you assume that they were commercial entities constrained by a policy that I myself created? Or would you assume that they were doing more than just commercial investing? It doesn’t really matter because we don’t know. But that doesn’t stop us from being slightly concerned about Adam and Andy.

Obviously, this thought experiment has a point, as a similar situation presents itself in a recent Emirate of Abu Dhabi bond prospectus (thanks to Wayne Arnold for flagging it up). On page 97, the prospectus introduces all of the major SWFs in Abu Dhabi. After going over ADIA, ADIC, IPIC and MDC, the report makes the statement:

“Both IPIC and MDC are state-owned but are run on commercial principles.”

When it comes to ADIA and ADIC, the prospectus simply says:

“ADIA and ADIC are investment arms of the Abu Dhabi government.” Then it goes on to say, “As a matter of policy, the government of Abu Dhabi does not currently disclose any information in relation to the investment portfolio of either ADIA or ADIC.”

This is the problem with too much secrecy. For all we know, ADIA and ADIC are completely commercial, return seeking organizations. But we can’t be sure about their behavior. As with the thought experiment, we simply do not really know if these funds are non-commercial investors. (…which is why I’m writing this for a blog and not an academic paper…) Nonetheless, when juxtaposed against their more transparent cousins (which the prospectus makes a point of calling commercial), ADIA and ADIC take on a less flattering luster.

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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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