Vision Offers Alternative Perspective

Ashby Monk

When it comes to spotting important trends, State Street has been pretty darn good. After all, it was a 2005 SSGA article by Andrew Rozanov that highlighted a new type of “public sector player” that was increasingly on the radar; in this article, Rozanov coined the term “sovereign wealth funds.” Since that time, SSGA has reveled in its prescience by launching a journal called “Vision.”

Vision’s most recent issue, which is the second issue on the topic of SWFs, was just released. “Sovereign Wealth Funds: Emerging from the Financial Crisis” is a good read (if you can get your hands on it…I got my copy from the authors). Indeed, it provides unique insights and alternative perspectives on many of the most interesting SWF debates. Because State Street has been a “trusted partner” of SWFs for over 20 years, their analysis is driven by their personal experiences working with these funds. Their views and positions are undoubtedly colored by this history. I think this is a good thing; the result is a report that is more sympathetic to SWFs than one might find from other SWF analysts. As an academic, I enjoy reading research that presents alternative views (in a coherent manner).

For example, the authors argue that the global economy misses out on some potential improvements to corporate governance when SWFs waive their rights to vote their shares and or give up directorships. After reading about Norway’s recent expansion of its active investor program, I think this is a fair point.

In addition, the SSGA team articulate a (rarely made) argument in favor of SWFs having some limited politically motivated investments. According to Rozanov:

“…combining a financial objective with a strategic policy objective could become more compelling. Such a strategy may also help a sovereign fund manager defend a large shareholding’s temporary underperformance, if a case can be made for not only superior expected returns but also some tangible benefits accruing to the broader economy.”

As the report notes, SWFs were “…set up for policy reasons and are available to policymakers to deploy in pursuit of certain policy objectives, which may or may not coincide with the optimal financial risk-return outcome.”

The authors do acknowledge that this type behavior may lead to inefficiency, waste and even corruption. But this shouldn’t be a deal-breaker:

“…rather than questioning the right of governments to be active participants in the local economy and financial markets, it may be more productive to consider how to structure such participation to mitigate associated risks and to allow businesses to operate normally in free markets and under fair regulation.”

This is an interesting perspective on a divisive issue. It reminds me of the debate in the US over double and triple bottom line investing. As I see it, the SSGA report is suggesting that with sound and transparent governance SWFs could do much more than just make money; they could improve corporate governance, help rebuild the global financial architecture, and even generate social welfare benefits.  

While you might not agree with all their positions, the report is thought-provoking and an interesting read. I look forward to their next intervention…

2 Responses to “Vision Offers Alternative Perspective”

  1. 1 rien huizer August 21, 2009 at 1:28 am

    Let me sleep on this..

  1. 1 UK Walker Review Likes SWFs’ Influence « Oxford SWF Project Trackback on November 3, 2009 at 2:53 pm

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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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