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Published May 9, 2009
SWFs lost some US$57b from listed equities: study
By EMILYN YAP
MISERY loves company, and sovereign wealth funds (SWFs) can certainly commiserate with one another when it comes to counting their investment losses. A new academic study shows SWFs had together lost almost US$57.3 billion from listed equities as of March this year.
Not surprisingly, stakes in Western financial institutions performed poorly, said the study's co-author and University of Oklahoma professor William Megginson yesterday. He was in town for the eighth Darden international finance conference, which the NUS Business School had a part in organising.
The study noted that the Abu Dhabi Investment Authority - one of the largest SWFs - could have lost over 90 per cent of the US$7.5 billion it invested in Citi in November 2007. The Government of Singapore Investment Corporation's US$9.8 billion stake in UBS in December 2007 could also have shrunk 78 per cent in value.
Data for the study came from a new SWF database by consulting firm Monitor Group and Italian research body Fondazione Eni Enrico Mattei. The study looked at 189 SWF investments in listed firms and considered their marked-to-market performance from inception until March 27, Prof Megginson said.
In reality, though, the losses may be smaller, said State Street Global Advisors' Hon Cheung, who is regional director of its official institutions group. He noted, for instance, that several stakes in the banks came with features that would help SWFs limit the downside.
The recent market rally may also have lifted investments' marked-to-market values. The S&P 500 index has risen more than 11 per cent since April 1, and Citi shares have jumped by more than 42 per cent in the same period.
Having been hit by losses, SWFs are likely to stay away from the US and European markets for now, Prof Megginson said. But he believes it is only a matter of time before they return - there are few markets and companies operating within established rules of law that are able to absorb multi-billion dollar investments. 'They don't really have a choice,' he explained.
SWFs will also become more careful and sophisticated with their investments when Western markets in need of capital welcome them back, Prof Megginson added.
But what about SWFs' perceived lack of transparency, which some in the West raised as a strong concern?
Both Mr Cheung and Prof Megginson believe over-disclosure could actually harm the funds. For instance, SWFs that reveal their asset allocation and fund performance too frequently could be pressured into adopting a shorter investment horizon, Mr Cheung said.
Published May 9, 2009
SWFs lost some US$57b from listed equities: study
By EMILYN YAP
MISERY loves company, and sovereign wealth funds (SWFs) can certainly commiserate with one another when it comes to counting their investment losses. A new academic study shows SWFs had together lost almost US$57.3 billion from listed equities as of March this year.
Not surprisingly, stakes in Western financial institutions performed poorly, said the study's co-author and University of Oklahoma professor William Megginson yesterday. He was in town for the eighth Darden international finance conference, which the NUS Business School had a part in organising.
The study noted that the Abu Dhabi Investment Authority - one of the largest SWFs - could have lost over 90 per cent of the US$7.5 billion it invested in Citi in November 2007. The Government of Singapore Investment Corporation's US$9.8 billion stake in UBS in December 2007 could also have shrunk 78 per cent in value.
Data for the study came from a new SWF database by consulting firm Monitor Group and Italian research body Fondazione Eni Enrico Mattei. The study looked at 189 SWF investments in listed firms and considered their marked-to-market performance from inception until March 27, Prof Megginson said.
In reality, though, the losses may be smaller, said State Street Global Advisors' Hon Cheung, who is regional director of its official institutions group. He noted, for instance, that several stakes in the banks came with features that would help SWFs limit the downside.
The recent market rally may also have lifted investments' marked-to-market values. The S&P 500 index has risen more than 11 per cent since April 1, and Citi shares have jumped by more than 42 per cent in the same period.
Having been hit by losses, SWFs are likely to stay away from the US and European markets for now, Prof Megginson said. But he believes it is only a matter of time before they return - there are few markets and companies operating within established rules of law that are able to absorb multi-billion dollar investments. 'They don't really have a choice,' he explained.
SWFs will also become more careful and sophisticated with their investments when Western markets in need of capital welcome them back, Prof Megginson added.
But what about SWFs' perceived lack of transparency, which some in the West raised as a strong concern?
Both Mr Cheung and Prof Megginson believe over-disclosure could actually harm the funds. For instance, SWFs that reveal their asset allocation and fund performance too frequently could be pressured into adopting a shorter investment horizon, Mr Cheung said.
