Some sovereign wealth funds might have been too quick to alter their investing policy during the financial crisis, the International Monetary Fund said in a report on its website.
Sovereign wealth funds have “substantial” capacity to play a stabilizing role in international capital markets because of their size and long-term investing strategy, the IMF said. The report said funds responded to the crisis in ways that included increasing liquidity, taking on more risk or adding new roles to their traditional mandates.
“This shift, however, may not be ideal or justified in all cases, and some SWFs are thoroughly reviewing their investment strategies and risk management frameworks,” said the report by Peter Kunzel, Yinqiu Lu, Iva Petrova and Jukka Pihlman of the IMF's monetary and capital markets department. The wealth funds now may need to examine their communications, reserve adequacy and liquidity policies, the report said.
The financial crisis affected funds in different ways, and there were “notable differences” in the approaches taken by funds that share investment goals. Losses in some countries sparked domestic debates on these funds' investment strategies, the report said.
Some funds, such as the $36.7 billion Alaska Permanent Fund Corp., Juneau, and Ireland's €15.5 billion ($21.3 billion) National Pension Reserve Fund, Dublin, increased their share of cash holdings, the report said. Other funds moved forward with pre-crisis plans to take on more risk, such as increased equity investments by the 3.1 trillion Norwegian kroner ($506 billion) Government Pension Fund-Global, Oslo, and investments in equity, fixed income and alternative assets by the A$69 billion (US$68.5 billion) Future Fund, Melbourne, Australia.
For Norway, this shift into equities “helped it to benefit greatly from the rebound of risk assets since 2009,” the IMF report said. Norway's fund also increased operations in Asia.