Sovereign Wealth Fund
Sovereign Wealth Fund
The purpose of this report is to analyze the myths associated with Sovereign Wealth Funds (SWFs) and provide a more balanced view of SWFs. The common misconceptions regarding SWFs that have been identified by David Murray are:
1. Homogeneity of SWFs: It is believed that SWFs are a homogenous entity, which requires uniform standards and benchmarks. However this has been negated by scholars like Barbary, who are of the opinion that though SWFs can be said to comprise of a distinct investor group, their membership is diverse. Within this group, the funds are completely different (Barbary et al, 2010).The various SWFs have different objectives, investment strategies, governance, while the inaccurate perception of SWFs remains one of their uniformity (Murray, 2011)
2. Standardized benchmarking: Based on the ill-founded premise that SWFs are homogenous, many academics believe that SWFs need to have standardized benchmarking. The concern with universal benchmarking is its tendency to neglect country-fund specifics (Tsani et al, 2010). SWFs, with their different objectives and diverse investment strategies cannot be expected to adopt universal benchmarks, but rather the scale of these standardizations need to be adapted and modified for the particular SWF.
According to Murray (Murray, 2011), forcing SWFs to follow a standard benchmark may lead to unsatisfactory financial results. “Rules that maximize outcomes for certain funds, will be ill-suited for others… ‘Best Practices’ assume there is only one way to achieve fund outcomes. SWF regulation needs to abandon a ‘one size fits all’ approach in favour of context-sensitivity and diversity accommodation” (Murray, 2011 p. 8)
3. Uniqueness of SWFs: SWFs are erroneously considered to be different from other investor groups like mutual funds, due to their status of being government sponsored. However, in a study conducted by the OECD, it was found that there was “no difference between the
The purpose of this report is to analyze the myths associated with Sovereign Wealth Funds (SWFs) and provide a more balanced view of SWFs. The common misconceptions regarding SWFs that have been identified by David Murray are:
1. Homogeneity of SWFs: It is believed that SWFs are a homogenous entity, which requires uniform standards and benchmarks. However this has been negated by scholars like Barbary, who are of the opinion that though SWFs can be said to comprise of a distinct investor group, their membership is diverse. Within this group, the funds are completely different (Barbary et al, 2010).The various SWFs have different objectives, investment strategies, governance, while the inaccurate perception of SWFs remains one of their uniformity (Murray, 2011)
2. Standardized benchmarking: Based on the ill-founded premise that SWFs are homogenous, many academics believe that SWFs need to have standardized benchmarking. The concern with universal benchmarking is its tendency to neglect country-fund specifics (Tsani et al, 2010). SWFs, with their different objectives and diverse investment strategies cannot be expected to adopt universal benchmarks, but rather the scale of these standardizations need to be adapted and modified for the particular SWF.
According to Murray (Murray, 2011), forcing SWFs to follow a standard benchmark may lead to unsatisfactory financial results. “Rules that maximize outcomes for certain funds, will be ill-suited for others… ‘Best Practices’ assume there is only one way to achieve fund outcomes. SWF regulation needs to abandon a ‘one size fits all’ approach in favour of context-sensitivity and diversity accommodation” (Murray, 2011 p. 8)
3. Uniqueness of SWFs: SWFs are erroneously considered to be different from other investor groups like mutual funds, due to their status of being government sponsored. However, in a study conducted by the OECD, it was found that there was “no difference between the