This content is from: Opinion

Weekend Reading

I've got lots of news to report today and have two papers for your weekend reading enjoyment!

First, here are today’s top stories:

- The China Investment Corporation is investing in the Russian potash company, Uralkali. 

- New Mexico's permanent funds (~sovereign funds~) grew by $4 billion last year.

- The State Oil Fund of Azerbaijan will start funding the Trans Anatolian pipeline in 2013.

- The Petroleum Fund of Timor-Leste has apparently topped $11 billion.

- The China Investment Corporation is reportedly looking at a $100 million investment in Island Timberlands in British Columbia.

- Mubadala has apparently taken another AMD board seat.

- Japan's Pension Fund Association for Local Government Officials is starting to manage more of its assets in house.

- Some thoughts on Spain's Social Security Reserve Fund: "If you buy your own debt, you effectively have nothing, so the government has filled a giant piggy bank with IOUs it has signed itself. There was obviously a hope that a financing bridge could be built, but it hasn’t turned out as planned.”

Second, here are some papers for you to read:

- Benjamin J. Richardson has a new paper entitled, “Sovereign Wealth Funds and the Quest for Sustainability: Insights from Norway and New Zealand. I found it quite interesting. Here’s a blurb: 

“Both the Norwegian and New Zealand SWFs resemble institutional chameleons in the conflicting expectations they face. They operate like private investment vehicles for maximizing shareholder value, while encumbered with public responsibilities to fulfill the ethical policies of their state. While ethical considerations of course are not necessarily only public in nature, and indeed a vibrant SRI market has evolved in recent years while states have increasingly opted for business-friendly policies, in the private realm ethical considerations have tended to be more vulnerable to usurpation by market pressures. Some commentators thus see tensions between SWFs’ financial and non-financial ambitions, and fear some SWFs might “serve as a covert mechanism for extending state power.”

The paper underscores the idea that sovereign funds that ‘take a long-term view’ could generate financial and social benefits. However, the traditional institutions of finance have pushed these funds to focus on financial returns only... which is another way of saying that these traditional institutions are pushing long-term sovereign funds into taking a short-term view. It’s a paper worth reading.

- The above article's argument is relatively similar to one I recently published with Adam Dixon in the Journal of Sustainable Finance & INvestment entitled, “Reconciling transparency and long-term investing within sovereign funds.” Here’s a blurb: 

“One of the potential consequences of the international community’s focus on transparency and commercial orientation, when it comes to sovereign wealth funds, has been to shorten the latter’s investment time horizons. As a result, these theoretically long-term investors are pressured into behaving like many short-term investors in the marketplace today, pushed by structural conditions that demand short-term performance in order to secure legitimacy. In evaluating the tension between transparency and long-term investing, we offer a conceptual framework for thinking through different types of transparency pertaining to the investment process as a means of discussing and communicating acceptable and non-acceptable asymmetric information in relation to financial performance.”

Again, we’re arguing that rise of sovereign wealth funds (i.e., an investor group with no liabilities to private sector agents) could facilitate a new era of long-term investing. However, the widespread preoccupation with benchmarking these funds (to ensure they are not trying to achieve geopolitical ends) against private sector investors serves to shorten their time horizon. And that's not a good thing. 

Anyway, enjoy your weekend!

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