Sovereign Wealth Fund Acquisitions: A Comparative Analysis with Mutual Funds

Abstract

Purpose – Run a comparative analysis between investments of sovereign wealth funds (SWFs) and mutual funds, focusing on firm-level, country-level, and institutional variables.

Methodology/approach – We use a hand-collected sample of 1,845 acquisitions around the world over the last 25 years (251 for SWFs and 1,594 for mutual funds). We then run univariate parametric and nonparametric tests to assess the differences in the investments of both subsamples.

Findings – We review the literature on the determinants of SWFs' investment decisions. Our analysis adds to the scarce available literature on the investment decisions of SWFs and their comparison with other institutional investors. Our results show that, compared to mutual funds, SWFs indeed exhibit different preferences: for instance, SWFs prefer to acquire stakes in larger, less liquid companies which are financially distressed but which also have a higher level of growth opportunities. They also prefer less innovative firms with more concentrated ownership, which are located in less developed but geographically closer countries with whom they do not necessarily share cultural and religious backgrounds.

Social implications – Our results are important for practitioners and firms seeking to attract a given type of institutional investment. They also add insights to the debate on the “hidden” political objectives behind SWF investments in the Western world.

Originality/value of paper – This is the first attempt to empirically assess the differences in the investment choices of SWFs and mutual funds.

Citation

Boubakri, N., Cosset, J.-C. and Samir, N. (2011), "Sovereign Wealth Fund Acquisitions: A Comparative Analysis with Mutual Funds", Boubakri, N. and Cosset, J.-C. (Ed.) Institutional Investors in Global Capital Markets (International Finance Review, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 355-389. https://doi.org/10.1108/S1569-3767(2011)0000012016