Sovereign Wealth Funds: A literature review

We study how sovereign wealth fund (SWF) investments affect the credit risk of target companies as measured by the change in their credit default swap (CDS) spreads around the investment announcement. Our analysis is based on a sample of 391 SWF investments in 198 companies between 2003 and 2010. Our results indicate that the CDS spread of target companies decreases, on average, following an SWF investment. The reduction in the CDS spread is higher when the SWF is established by a politically stable non-democratic country that has a neutral political relationship with the host country of the target company. The results are robust to different definitions of the dependent variable in terms of event window, CDS maturity and calculation of the benchmark CDS spread. Our results suggest that creditors expect SWFs to protect target companies from bankruptcy when it is in the interest of their home country to build political goodwill in the host country of the company.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1944805_code265955.pdf?abstractid=1763173&mirid=5

The Effect of Sovereign Wealth Funds on the Credit Risk of Their Portfolio Companies

Sovereign wealth funds: Past, present and future

This paper studies the regulatory issues related to the â€œSovereign Wealth Fundsâ€ (SWFs), described as â€œspecial purposeâ€ government investment vehicles. Concerns have been expressed due to SWFs limited disclosure and transparency and their multiple investment objectives. While the risk of a political/strategic bias should not be underestimated, this paper argues that at present a specific regulation of SWFs may not be needed, as their asset management is already constrained by many regulatory, economic and political factors. With specific reference to legal aspects, this paper proposes that a balanced and proportionate regulatory approach to SWFs issues may just require, for the time being, to complement â€œsoft lawâ€ instruments with a â€œlightâ€ and â€œindirectâ€ regulatory and supervisory framework for SWFs equity investments.

The so-called "Sovereign Wealth Funds": regulatory issues, financial stability and prudential supervision.

The effect of sovereign wealth funds on the credit risk of their portfolio companies

Sovereign wealth funds, the investment arms of foreign governments, are challenging the U.S.'s traditional notions of free enterprise and its commitment to open markets. In this paper, I attempt to discern the facts from the hype and assess whether there is due cause for the U.S. to take affirmative steps to better protect its interests. As investors in U.S. companies, sovereign wealth funds offer a number of benefits. The size of their available funds and their ability withstand short-term volatility help promote economic growth and job production in the U.S., not to mention offer U.S. companies and investors access to emerging markets and economic stability. As their record reveals, the concerns associated with sovereign wealth funds, including corruption and strategically-motivated investments are, to-date, only hypothetical. Nonetheless, the risks raised by the funds are significant, and safeguards to prevent them from becoming reality may be in order. In determining whether and to what extent to regulate sovereign wealth funds, the U.S. must avoid over-restricting the funds' participation in U.S. markets. Instead, the U.S. should consider narrowly-tailored options, such as disclosure of voting records or the use of external asset managers, to address the specific risks associated with sovereign wealth funds.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1507889_code969858.pdf?abstractid=1264349&mirid=1

Amy D. Keller

Papers

Sovereign Wealth Funds: Trustworthy Investors or Vehicles of Strategic Ambition?