Essays on Sovereign Wealth Funds

  • Malik Kerkour

Student thesis: Doc typesDoctor of Economics and Business Management


Sovereign Wealth Funds (SWFs) are public investment agencies which manage part of the assets owned by national governments resulting from excess of exchange foreign reserves, oil or gas receipts as well as trade surpluses. While the existence of this type of investors is not new, their increasing power is a recent phenomenon. The opaqueness surrounding SWF activities, coupled with the steady growth of assets under management, has stimulated the interest of the research community. In particular, their increased size has raised concerns regarding the actual motives behind their investments, which are often suspected to be political rather than purely economic. The three essays constituting this doctoral thesis all intend to use an original large-scale database on SWF as well as up-to-date econometric techniques to improve our understanding of SWF investment strategy.

Specifically, Chapter 1 aims to shed light on the question of why some countries are more attractive for SWF investments than others. To do so, we develop an original framework and contribute to the existing literature in two specific respects. From an economic perspective, we quantify the specific role of spatial dependence in the location of SWFs' investments. From a methodological perspective, we amend the estimation procedure of traditional spatial panel models in order to apply the Inverse Hyperbolic Sine transformation to the dependent variable. This transformation is particularly convenient in the context of net capital flows modeling as it allows to cope with the presence of extreme values as well as so-called zero and negative net flows. Using an original dataset composed of 43 countries over the 2004 to 2009 period, we provide evidence of spatial dependence in net flows of capital, investments in one country being on average at the expense of its neighbors. Among the regressors, skill endowment, financial market development, SWF domestic net investments, GDP per capita and the stock market volatility stand out as critical factors for countries to attract those capitals.
Chapter 2 intends to contribute to the existing literature by investigating the economic determinants of SWF investment strategies, while explicitly accounting for interdependence with respect to different choices: (i) whether to invest, (ii) whether to invest in a listed or an unlisted firm, and (iii) the size of the investment to be made. Employing a nested logit approach on Temasek data over the period 1990-2010, we provide clear evidence of interdependence in the three levels of decision considered. In addition, we show that Temasek's foreign investment probability increases with an excess of FX reserves, tends to target unlisted firms when asymmetry of information is low between targeted and SWF countries, and involves smaller or larger stakes depending on firms' financial characteristics.
Eventually, Chapter 3 aims to investigate the determinants of SWF performance and the particular conditions under which fund size is performance-enhancing. Employing a panel framework of 22 SWFs over the period 2004-2013, we provide evidence that fund size is negatively related to SWF performance in a nonlinear way. This result indicates that medium SWFs tend to outperform small and large funds, suggesting that diseconomies of scale appear for large SWFs. Whereas the adverse scale effect is not related to the liquidity hypothesis, the ``opportunity constraint'' hypothesis proves to be main source of diseconomies of scale. Finally, we show that SWF investments serve political objectives and are in conflict with economic interests as they invest in United Nations Security Council members for nonprofit maximizing objectives.
Date of Award10 Dec 2015
Original languageEnglish
Awarding Institution
  • University of Namur
SupervisorJean-Yves Gnabo (Supervisor), Annick Castiaux (President), Oscar Bernal Diaz (Jury), Sophie Bereau (Jury) & Hélène RAYMOND (Jury)


  • Sovereign Wealth Funds
  • Pull Factors
  • Spatial Econometrics
  • Inverse Hyperbolic Sine Transformation
  • Nested Logit Model
  • Foreign Direct Investment
  • Private Equity
  • Public Equity
  • Majority Stake
  • Information Asymmetry
  • International Financial Markets
  • Decreasing Returns to Scale
  • Size-Performance Relation
  • Abnormal Returns
  • Opportunity Constraint
  • Investment Speed
  • Investment Determinants
  • Performance Determinants

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