However one should not overestimate the role

In the stock market and financial debacle, some yet realize excellent business. Temasek, the most active sovereign wealth funds, could reap $ 1.5 billion from the sale of its participation in the buyout of Merrill Lynch by Bank of America. A significant benefit for only nine months of placement... This astronomical benefit, to the extent of the risks taken in an era where person is pushing to invest in the Bank, is not the rule for this type of player. This is demonstrated by several recent studies.

In the two days around the announcement of the entry in the capital of a sovereign wealth Fund, the title of the target registers an increase of 2.1 (1). This gain has been doubled since 2006. It is a sign of recognition by the market weight and the increasing influence of sovereign wealth funds on the financial scene international. When they took foot in big Wall Street banks made evil by the "sub-prime" crisis, they emerged as the "last chance" investors for failing institutions. Only past the immediate relief, their intervention rarely prevented dive courses. What penalize their investments.

Over a period of two years, the performance of SWF investments fall drastically negative yield 41 (2). That confirms the study of the Federal Reserve, which shows that targets corporations have little significant improvement in profitability, growth, investments or their corporate governance in the three years following the burst of a sovereign Fund in their capital.

The market could indeed overestimate the capacity of good coach of values on a case by case ("stock-picker") of the funds. And in particular their ability to identify the dumped values. The sovereign may also buy too early "massacred" values Their sense of the "timing" is not very good, which is also the case of most traditional managers. In view of their very long investment horizon, they can also entirely cash and suffer a decrease in their investment stock, even over two years because of their status of long term investors and "frustrating", investing in upstream of the dominant movements. However one should not overestimate the role. Like the others, they are also sensitive to the "momentum" effect: they tend to put their money in the values that have experienced a progression marked their course in the recent period (60 days).

Sometimes conflicting objectives

The reasons for this underperformance could be explained by their status even of major investors "passive". Because of their weight or their notoriety, they have less easily than the other institutional a role monitoring and steering of the management of the companies in which they have invested, leading to a decline in the stock market performance. Stable and powerful shareholders whose objective is not always the only maximization of the value of their investment. Each Fund is the result of the political, economic and cultural context of his own country. Their investment policy is to feel because of the coexistence of objectives various always compatible step. Proof is that in one case three, sovereign fund chooses a target which is located in his own country, which demonstrates a "patriotic bias" in the investments of some, as a result of pressure from their Government. Moreover, the Fund also tend to invest in countries who share their religion, their culture or their language (3)...

The less permeable funding pressures and incentives of their respective countries would have a more rational investment policy and therefore more efficient. In addition to strategic focus, invest in banking, and financial sector which registered a third of equity last twenty years, this interest in terms of portfolio diversification. This sector, like health, is negatively correlated to the oil prices. A significant element for a sovereign fund whose resources would depend on the evolution of oil prices and which would therefore seek to protect themselves against their risk of decline. However, in the recent past, the collapse of the Bank went hand in hand with oil, unlike what is found off periods of crisis.

Distribution of long-term

Also market it still has difficulties to see in the sometimes uncertain and contradictory these actors referred and appreciated a bit of clarity. If there is no relationship between the amount of the initial investment by a Fund and the future performance of the target, there is a strong and positive relationship between this performance and the degree of governance and transparency of the sovereign. The performance of companies target acquired by transparent SWFs, which are subject to independent audits or who publish annual reports, is 3.5 higher than other companies. Given that the market reward transparency, the adoption of codes of good practice in this area is a pay strategy for these funds.

Underperformance of these investments must be made. The key to the performance of sovereign wealth funds, as all large institutional investor, it is their strategic allocation, that is their decision to invest in three or five years a percentage of their assets in stocks, bonds, etc. The allocation of long term of their portfolio between asset classes is their main source of performance, more than their paris microeconomic on any particular company.