Research & Publications

The IFSWF and its partners regularly publish research on matters of interest to sovereign wealth funds. We also include other publications of interest to our members.

  • Hunting Unicorns: Bocconi Sovereign Wealth Fund Annual Report 2016

    IN 2016 AN ABRUPT SWITCH FROM SAFE ASSETS TO HIGH TECH INVESTMENTS HAS BEEN RECORDED IN THE 39.9 BLN DOLLARS INDUSTRY, ACCORDING TO THE SIL REPORT PRESENTED TODAY, AS INVESTMENT VALUE HITS A TEN YEAR LOW 2016 has not been a business-as-usual year for Sovereign Wealth Funds (SWFs), according to the Sovereign Wealth Fund Report 2016, presented today by Sovereign Investment Lab (SIL, part of Bocconi’s Baffi Carefin Center) in a closed-doors event. SWFs reacted to low commodities prices and heightened political uncertainty by reducing their investments to a ten-year low and by abruptly switching from safe assets to risky, mainly IT investments, following the footsteps of venture capitalists and inducing the SIL scholars to title their 2016 Report Hunting Unicorns.   The 21 SWFs monitored by SIL completed 158 deals in 2016 (-14%) for a total publicly reported value of $39.9 billion (-16%), reaching the lowest level since 2006. The industry seems, though, to have already bounced. “With the sand of political uncertainty settling and global growth on the rise”, says SIL Director, Bernardo Bortolotti, “2017 promises to be an exciting year”. Deals and investment value since 2000 Source: SIL Report 2016 Some excitement has, however, come also in 2016, with SWFs replacing safe assets (including real estate, hotels and tourism facilities, infrastructure and utilities) with IT-linked investments. With 31 deals worth $13.4 bln, high-tech investments represented 19% of the number of deals and 33% of investment value. In 2016 SWFs invested in the sector more than they did in the last 10 years combined. “The bets that SWFs have taken in this sector is astonishing”, Prof. Bortolotti says, “and the latest announcements suggest that the game has just started. Whether they will succeed or fail will depend largely on their execution capabilities to source the right deals, and in-source the right talent. In their hunt for unicorns, SWFs will have to take a stance towards sophisticated and nimble investors, such as venture capitalists, who have dominated this space up to now”. Investments in IT Source: SIL Report 2016   2016 confirmed the trend towards the reduction in investments in the financial sector, ignited by the financial crisis. With $2.1 bln, representing 5% of total value, investments in the sector have hit the bottom.   After a couple of years of decreasing investments, in 2016, the USA made a big comeback and once again emerged as a safe haven amid global chaos. With $14.9 billion worth of SWF investments, it was by far the most attractive market in 2016. Europe recorded one of the worst years in the last decade attracting only $7.2 billion worth of investments. Target areas   Source: SIL Report 2016   Today’s presentation was also attended by the 17 participants to SDA Bocconi School of Management’s Sovereign Investment Academy, coming from SWFs of three continents, including representatives of Iran, Saudi Arabia and Palestine. Designed in collaboration with the International Forum of Sovereign Wealth Funds, the Academy “provides targeted, specialised and innovative training and education, which is currently not available in traditional executive programs”, says Prof. Bortolotti, who’s also Director of the Academy.  

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  • African Nations Must Embrace Global Standards of Financial Reporting to Attract Foreign Investors

    By Hugo Miguel Évora Gonçalves, Member of the Board of Directors, Fundo Soberano de Angola This article was originally published in African Leadership Magazine. Strong market oversight and transparent financial reporting standards are essential foundations for increasing foreign direct investment.  Almost every country in Europe and South America require the use of financial reporting methods issued by the global body, International Financial Reporting Standards (IFRS), a set of financial reporting standards that are considered the most stringent in the world. Right across the world, IFRS standards are used to enforce transparent reporting so that the world’s markets have faith that the global flow of capital is secure. The EU has adopted the IFRS disclosure standards, where they are required for all consolidated financial statements. So too have the USA, Canada and Mexico. More than 500 foreign companies listed on US exchanges already report using IFRS and since the global crisis, there has been significant adoption in emerging markets in Asia and the Middle East. Adoption of IFRS standards is, however, not universal and some of the world’s biggest economies do not enforce them. China has created its own version, as has India, although their respective bodies mirror many IFRS standards and India plans to move from its own system (GAAP) to full adoption of IFRS. Adoption and enforcement of IFRS mean that businesses in these growing markets can present their finances to the world on the same basis as foreign competitors. Even in China, which is a relatively closed market, there are exceptions where IFRS standards are deemed necessary. When the Industrial and Commercial Bank of China (ICBC) made the largest ever outward investment by a Chinese entity and acquired an interest in the Standard Bank Group (SBG) for $5.5 billion, it was a landmark moment. ICBC and Standard Bank both used IFRS standards, meaning that issues of compliance and due diligence were dealt with easily and with confidence. Speaking the same financial reporting language and adhering to precisely the same regulatory requirements is essential for companies doing business in emerging markets - and crucial for local companies seeking capital investment from abroad. In Africa, some of the region’s biggest economies are moving towards adoption of IFRS standards. Countries such as Angola and Nigeria, whose economies were shaken by the collapse in commodity and oil prices, are increasingly looking to diversify their source of funding by seeking foreign capital to strengthen development and increase economic prosperity. Moving towards IFRS should be seen as part of a journey - a transformational shift that cannot happen overnight. Nigeria started its own journey in 2010 when the Federal Executive Council approved the Roadmap for Nigeria’s adoption of the standards. This was followed by the enactment of the Financial Reporting Council of Nigeria Act in 2011, which led to the transformation of the Nigeria Accounting Standards Board to the Financial Reporting Council (FRC). Angola’s markets have opened considerably over recent years to attract more foreign investors. The government of Angola has incentivized foreign companies by relaxing elements of its tax regime, whilst also introducing a range of measures aimed at gaining greater trust from private investors and global markets. In early 2016, Angola was removed from the Financial Action Task Force (FATF) grey list after introducing important regulations aimed at stamping out money laundering and human trafficking. FATF is an inter-governmental body developing and promoting policies to combat money laundering, human trafficking and terrorist financing. Algeria was also removed from the blacklist in 2016 – illustrating that two major economies in Africa have made significant progress in the fight against financial crime. Serious measures such as these depend not only on the will to do the right thing – but also on good governance and a strong regulatory environment. With national structural change and enforcement comes much greater trust for growing local companies that seek to borrow from financial organisations – as well as ordinary citizens that seek to keep their savings in a local bank. This regulatory shift comes at the right time for Angola and its economy because some of the country’s largest and most important national infrastructure programs have foreign private money invested in them. The completion of major infrastructure projects is imperative for Angola; as is foreign capital investment in high-growth industries such as agribusiness and hospitality. For these industries to grow and for businesses to flourish locally, nationally and across borders, transparency is crucial. And for Angola, sustainable economic growth and diversification rest completely on this transformational permanent change. Leading the way inside Angola is the country’s sovereign wealth fund, the FSDEA, which fully transitioned its bookkeeping and financial statements from the national accounting standards for financial institutions (CONTIF) to IFRS with the Fund’s 2015 annual audited results fully compliant with these set of stringent financial reporting standards. This conversion, a first for a major Angolan organisation, has made the FSDEA’s annual financial statements more comparable, understandable, consistent and substantial for analysts, researchers and general stakeholders across the various jurisdictions where it invests.   As a major investor in national infrastructure and local industries, FSDEA simply cannot operate with anything other than complete transparency and openness. FSDEA’s transition followed the Central Bank of Angola’s 2014 announcement that all Angolan financial institutions must adopt IFRS in 2016. Positively embracing IFRS sends a powerful message to global markets that Angola is committed to global standards of governance and that private capital is safe in the hands of government institutions and local Angolan partners. The challenge is to implement and enforce change, which takes time partly because of the cultural shift in attitudes that needs to take place. Yet, these are attitudes and behaviours that must change. As the whole world converges, Africa needs to take full advantage of the economic opportunities laid out in front of it; which means pushing for change as fast as possible. Investment, growth and success feed on trust – global markets the world over have learnt this fact the hard way. If Africa can learn from the mistakes of the past and embrace change, the continent’s extraordinary potential can be unlocked further and at a faster pace for increased economic prosperity.

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  • New challenges, private markets: Sovereign wealth funds’ changing investment strategies

    During 2016, the International Forum of Sovereign Wealth Funds' Investment Practice Committee undertook two major research projects with research partner, State Street Corporation. The first project looked at changes in sovereign wealth funds' asset allocation particularly with a view to the increase in investments in private markets and managing risk. The second project looked at how sovereign wealth funds are retooling to manage a greater proportion of their assets in privately held assets and what the lessons for their peers that are new to these markets.

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  • Implementing the Santiago Principles: from demonstrating commitment to creating value

    At the International Forum of Sovereign Wealth Funds (IFSWF) eighth annual meeting in Auckland, published a new volume of case studies describing members’ experiences in applying the Santiago Principles, the code of best practice that all IFSWF members agree to uphold. These cases highlight the benefits bestowed by the transparency, accountability and investment frameworks recommended by the Principles. Full self-assessments by 28 members will be published online in early 2017. Commenting on the publication of the case studies, IFSWF Chair, Adrian Orr, the Chief Executive of the New Zealand Superannuation Fund, said “the publication of these case studies is an important step in helping others understand our members better. Better understanding will provide our members with more efficient access to opportunities, better performance by each member fund and a stronger financial system overall.”

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  • Sovereign Wealth Fund Annual Report 2015

    Prof. Bernardo Bortolotti, Sovereign Investment Lab, Bocconi University

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  • Oil-funded SWFs at a turning point

    Sven Behrendt, Managing Director, GeoEconomica

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  • The Santiago Principles: What’s next?

    Sven Behrendt, Managing Director, GeoEconomica

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  • The Long-Term Portfolio Guide

    Focusing Capital on the Long Term (FCLT) Initiative Source: http://www.fclt.org/en/home.html

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  • Principles and Policies for In-House Asset Management

    Gordon L Clark, University of Oxford and Ashby H B Monk, Stanford University

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  • How do Sovereign Wealth Funds Invest? A Glance at SWF Asset Allocation

    State Street Global Advisors

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  • Regulatory Reforms, Investment Regimes and Outlook for Institutional Investors: A Recipient's Point of View; Beijing — May 2011

    Remarks by OECD Deputy Secretary General Mr. Richard Boucher

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  • IFSWF Case Study: Constructing Portfolios for Specific Macroeconomic Environments; Beijing — May 2011

    IFSWF

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  • IFSWF Case Study: Managing Currency Exposures of Financial and non-Financial Assets; Beijing — May 2011

    Alberta’s Heritage Fund (Canada)

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  • IFSWF Case Study: Accounting for "fat tails" in portfolio risk management; Beijing — May 10-13, 2011

    New Zealand Superannuation Fund

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  • The Agency Challenge and Stewardship Opportunity; Beijing — May 11, 2011

    Address by Sir David Walker

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  • Outlook: Global Economy & Global Financial Stability

    José Viñals, Financial Counsellor, Internatonal Monetary Fund

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  • SWFs: Myths and Realities

    David Murray, Future Fund

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  • Proposed Best Practices in Investment and Risk Management for Sovereign Wealth Funds

    IFSWF, Investment and Risk Management Sub-Committee

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  • Good Practices in Investment and Risk Management

    IFSWF, in Sydney 2010

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  • Macrofinancial Linkages of the Strategic Asset Allocation of Commodity-Based Sovereign Wealth Funds

    International Monetary Fund Working Paper

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