30/12/2015
Performance of sovereign funds related to their level of independence
Sovereign funds which are dependent for their power to adopt policies earn less good performance with their stock market investments than their counterparts which are more free in their investment decisions, according to a study carried out by three university researchers, Veljko Fotak at the University of Buffalo, Bernardo Portolotti at the university of Turin, and William Megginson at the University of Oklahoma.The analysis of more than 1,000 investments by sovereign funds in companies finds that shares in these companies purchased by government funds gained less than the approximately 6,000 similar purchases made by private investors. The gap for sovereign funds is smaller when these funds are very strictly regulated. Equities purchased by the Norwegian sovereign fund, however, did not reveal any gap, the study finds.“The gap is much more pronounced for funds which we identified as “politicized,” meaning funds with less protection against government interference,” Fotak says in an interview with the Wall Street Journal. “The most sophisticated or protected sovereign fund is the Norwegian sovereign fund, a model of independence from political power. We estimate that this fund is not dependent on political interference. There is no shortfall when the Norwegisn fund buys equities,” says Fotak.“Unlike the work of previous researchers, our results show that, in addition to less good short-term performance, most investments by sovereign funds also result in deterioration of long-term performance, both in absolute and relative terms, compared with investments in the private sector,” Fotak says, cited in a statement.
