Sovereign wealth funds likely will increase internal management and take a more active role in engaging companies in which they invest, according to an analysis of data by SSgA.
SSgA concluded that about a third of the total $3 trillion in SWF assets are managed by external managers, but that portion seems to be on the decline, said John Nugee, managing director for the official institutions group at SSgA. “It's quite clear that the more established funds have been increasing their internal capability,” Mr. Nugee added. “We expect this to continue.”
Overall, SWF assets are generally “back to where they were in mid-2007,” indicating that while the funds suffered from performance throughout the financial crisis, the recovery has also been strong, Mr. Nugee said. “Overall, sovereign wealth funds have taken a conservative approach” to investing compared to pension funds and endowments, he added.
The crisis also put active engagement and shareholder rights on the agenda for fund officials. In 2007, many SWFs garnered criticism for their interests in major Western institutions, particularly financial companies. To appease critics, many fund officials announced they wouldn't meddle in company activities by active engagement or through shareholder rights.
“But in 2008, we saw some of the financial companies go off the rails a bit,” Mr. Nugee said. “One of the contributing factors (to the financial crisis) is weak shareholder governance. … Shareholder governance has got to be tightened, and shareholders need to accept their obligations as owners. SWFs are no exception to that.”
The analysis included 37 sovereign wealth funds each with at least $3 billion in assets and a total of $3 trillion in combined assets. The average size of the funds was about $85 billion.
