Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

46 Pages Posted: 19 Aug 2015

See all articles by William L. Megginson

William L. Megginson

University of Oklahoma

Veljko Fotak

School of Management, University at Buffalo (SUNY); Sovereign Investment Lab, Baffi Carefin, Bocconi University

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015


We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year‐end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand‐alone wealth management funds; we both survey this research and show that more than 25 countries have launched or proposed new SWFs since January 2008. The most salient and controversial feature of SWFs is that they are state‐owned; we survey the existing literature on state ownership and discuss what this predicts about the efficiency and beneficence of government control of SWF assets. We discuss the documented importance of SWF funding sources (oil sales revenues versus excess reserves from export earnings) and survey the normative literature describing how SWFs should allocate funds. We then summarize the empirical literature studying how SWFs actually do allocate funds — across asset classes, geographically, and across industries. We document that most SWF equity investments in publicly traded firms involve cross‐border purchases of sizeable minority stakes (median around 20%) in target firms, with a strong preference for investments in the financial sector. Next, we assess empirical studies examining the impact of SWF stock investments on target firm financial and operating performance, and find universal support for a positive announcement period stock price increase of 1-3%. This, however, is significantly lower than the 5% abnormal return documented for stock purchases by comparable privately owned financial investors in recent studies, indicating a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.

Keywords: Government policy and regulation, International financial markets, Sovereign wealth funds

Suggested Citation

Megginson, William L. and Fotak, Veljko, Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research (September 2015). Journal of Economic Surveys, Vol. 29, Issue 4, pp. 733-778, 2015, Available at SSRN: https://ssrn.com/abstract=2646253 or http://dx.doi.org/10.1111/joes.12125

William L. Megginson (Contact Author)

University of Oklahoma ( email )

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HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Veljko Fotak

School of Management, University at Buffalo (SUNY) ( email )

School of Management, University at Buffalo
236 Jacobs Management Center
Buffalo, NY 14260
United States
+1 716-645-1541 (Phone)

Sovereign Investment Lab, Baffi Carefin, Bocconi University ( email )

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