AAG Annual Meeting Roundup

Ashby Monk

I count myself as lucky to have participated in the SWF panel discussion on Friday evening in Washington DC at the AAG Annual Meeting. As embarrassing as this is to admit, it was the most entertaining and thought-provoking 100 minutes I’ve had in a long while. There is no way I can do justice to the conversation that took place, but I’ll try to provide some generic thoughts that I came across in my notepad this morning. For fear of misquoting or misinterpreting someone, I’ll leave these anonymous:

Coping mechanisms: Policymakers view SWFs as a way to maintain popular, domestic institutions and agendas that would otherwise contradict with the creeping institutions of global capitalism. As such, SWFs are simply coping mechanisms for states increasingly integrated into the global economy. Policymakers today recognize that SWFs offer a way to maintain popular, domestic institutions that would otherwise contradict with the institutions of global capitalism.

Irony: Through SWFs, a growing number of states are further integrating into global markets. However, SWFs are not evidence of “convergence” even if they are a convergent policy tool. Instead, these funds exist to engage with markets to mute the convergent and destabilizing impacts of global capitalism at the local level. In short, they engage with markets so as to mute the impact of markets. Herein lies the great irony.

Sovereignty: SWFs are a way for small nations — without any real power or significance on the global stage — to assert their sovereignty. SWFs are new “spaces of engagement” that allow for smaller countries to have some expression of their interests realized at a global level.

Destabilization: SWFs are not a solution to global-macro imbalances. In fact, they are a sign of macro-weakness. SWFs are the band-aid for a much deeper problem. So, as long as SWFs exist, we’ll know that deeper macro problems have not been resolved.

SWF Inputs: The idiosyncratic histories and cultures among SWFs have led to variable inputs in terms of financial services and products. In order to sell into these funds, asset managers are having to renovate their operations in order to match up with this increasingly important financial actor. In practice, this has resulted in investors locating nearby SWFs and working to nourish the ever important SWF relationships that inevitably lead to new business (i.e. mandates).

SWF Outputs: One panelist asked, “What are the implications of the rise of SWFs for corporate governance?” There was a sense that two problems existed in this domain.

  • First, SWFs are, in many cases, not taking up their responsibilities as shareholders due to national security concerns, which leaves managers without the discipline of shareholders. This can, in turn, lead to a variety of principal agent problems.
  • Second, in cases where SWFs ask for board seats (QIA in Volkswagen), some worried that the secretive SWFs will export a sub-optimal form of governance to corporate boards (i.e. secretive and non-transparent).

Identity crisis: Over the past few years, countries around the world have made attempts to import anglo-american models of corporate governance into their SWFs. This was done to achieve legitimacy in international markets.  Over the next few years, these models will be re-defined and re-worked to match up with domestic notions of legitimacy. The  outcome will be a hybrid form and function that expresses the national interests of the sponsor.

As you can tell, panelists came with a variety of perspectives and opinions. It was well worth the trip…

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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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