Weekend Reading

Ashby Monk

In trying to bring you research of value on a weekly basis, I’ve sometimes found myself reading papers from times long ago and places far, far away. I won’t lie; more than one computer has perished from indigenous vīrīs acquired while searching the furthest reaches of the nets  (pro tip: Chrome is to spacesuit as Windows is to space speedo). But something interesting has happened lately: I haven’t had to visit quite as many MosEisley-style websites as I did in the past. In fact, there is more than enough new research coming out these days in traditional (and computer safe) web milieux. For example, my backlog of new research papers for “weekend reading” has now grown to over thirty.

So, this then begs the question: Has sovereign fund research finally gone mainstream? Truth be told, it means that this research went mainstream two years ago, which is when the academics would have started thinking about writing funding applications for papers that are coming out today (and that’d be a relatively quick turnaround). It looks like we’ll have more than enough new and interesting research to populate these pages in the coming months; here are three recent SWF papers of interest:

1) Eiichi Sekine has just published a paper entitled “The Governance of China Investment Corporation on its Way to Becoming a Sophisticated Institutional Investor.” It offers a detailed case study of the CIC and its internal decision-making processes. Here’s a blurb:

“China Investment Corporation (CIC)’s investment performance in 2009 was better than in 2008 as a result of its 11.7% return on its global portfolio. Underlying CIC’s active management of its overseas investments were reforms to its governance and improvements to its human resources management. As CIC establishes a system of governance that can match any in the private sector and becomes an increasingly sophisticated institutional investor, its investment approach may come to be seen as a model for emerging economy sovereign wealth funds. Potential investment targets, such as Japanese companies, need to do more to develop their relations with CIC and other mainland Chinese institutional investors.”

2) Zvi Bodie and Marie Briere have just published a paper entitled “Sovereign Wealth and Risk Management.” The authors reconsider asset liability management strategies for governments in light of the recent raids governments have made on their SWFs. Here’s a blurb:

“In 2010, for example, in the wake of the subprime crisis, Russia, Ireland, Kazakhstan and Qatar used SWFs or public pension fund assets to invest in banks or shore up equity markets. Segregating the various items on government balance according to the institutions that manage them is a delusion because, when serious problems arise, all assets are fungible…When a government is short of liquidity to meet its debt payments, the SWF’s assets are automatically available to substitute for the funds initially earmarked for this purpose…This paper proposes an analytical framework for optimal asset allocation of sovereign wealth, based on the analysis of a sovereign balance sheet…But, as the example of the recent crisis has shown, it is illusory to consider them as independent. An integrated sovereign ALM would necessitate close coordination between the various sovereign entities, both on the asset side (central bank, sovereign wealth fund) and on the liability side (debt management office, ministry of finance).”

3) Sameer Jain has just published a paper called “Integrating Hedge Fund Strategies in Sovereign Wealth Portfolios.” The author considers issues related to hedge fund allocations that are specific to SWFs. However, I’m mostly keen on this paper because of this crazy chart…

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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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