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Sovereign Wealth Funds as domestic investors of last resort during crises

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  • Hélène Raymond

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Usual definitions of Sovereign Wealth Funds (SWFs) put emphasis on their foreign investments. But after September 2008, some Sovereign Wealth Funds refrained from foreign investments and intervened to support their home economies during the crisis. We show that the interventions of Sovereign Wealth Funds as domestic "investors of last resort" are far from marginal and that they are not a passing innovation of the last global crisis. We review first the cases of interventions of SWFs as "shareholders of last resort" and differentiate interventions targeted on banks, from more general interventions designed to support non financial firms. We also run some regressions to quantify the impact of Gulf SWFs' interventions on their home Stock returns and volatility. We find that the interventions of the Kuwaiti SWF were unsuccessful, whereas the Qatari intervention of October 2008 managed to rise effectively the Stock market return in the short run. We then turn to the interventions of SWFs as "lenders of last resort" and insurance funds against major crises. In some cases (Russia, 2009; Australia, 2007-2008) the lending by SWFs is targeted on the home banking sector. SWFs can provide medium term financing to ease the liquidity constraints of banks, whereas Central Banks' loans are mostly at short term. But the intervention of Saudi Arabian SWF in 2008 was of a different kind, as the lending was targeted on non financial firms to make up for banks' reluctance to lend and stimulate the economy. Lastly we discuss the role of Sovereign Wealth Funds as insurance funds against major crisis. SWFs may be used for government spending during crises or even intervene on Stock markets to counter speculative attacks, as was illustrated by the interventions of the Singaporean SWF GIC and of the HKMA.

Suggested Citation

  • Hélène Raymond, 2010. "Sovereign Wealth Funds as domestic investors of last resort during crises," Working Papers hal-04140918, HAL.
  • Handle: RePEc:hal:wpaper:hal-04140918
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140918
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    Cited by:

    1. Debarsy, Nicolas & Gnabo, Jean-Yves & Kerkour, Malik, 2017. "Sovereign wealth funds’ cross-border investments: Assessing the role of country-level drivers and spatial competition," Journal of International Money and Finance, Elsevier, vol. 76(C), pages 68-87.
    2. Luisa ANDERLONI & Daniela VANDONE, 2012. "Sovereign Wealth Fund Investments in the Banking Industry," Departmental Working Papers 2012-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    3. Alhashel, Bader, 2015. "Sovereign Wealth Funds: A literature review," Journal of Economics and Business, Elsevier, vol. 78(C), pages 1-13.
    4. Aris Wahyu Raharjo, 2022. "Evolving Sovereign Wealth Fund under Infrastructure Funding Scarcity: A Literature Study ," GATR Journals jber222, Global Academy of Training and Research (GATR) Enterprise.
    5. Chahir Zaki & Raimundo Soto & Ibrahim El Badawi, 2018. "Sovereign Wealth Funds, Cross-Border Investment Bias and Institutions: The Case of Arab Countries2," Working Papers 1173, Economic Research Forum, revised 25 Mar 2008.
    6. Nicolas Debarsy & Jean-Yves Gnabo & Malik Kerkour, 2016. "Sovereign Wealth Funds’ cross-border investments: assessing the role of country-level drivers and spatial competition," Working Papers hal-01251243, HAL.
    7. Diego López, 2023. "SWF 3.0: How sovereign wealth funds navigated COVID-19 and changed forever," Journal of International Business Policy, Palgrave Macmillan, vol. 6(3), pages 372-387, September.
    8. Sun, Xiaolei & Li, Jianping & Wang, Yongfeng & Clark, Woodrow W., 2014. "China's Sovereign Wealth Fund Investments in overseas energy: The energy security perspective," Energy Policy, Elsevier, vol. 65(C), pages 654-661.
    9. Jean-Baptiste Hasse & Christelle Lecourt & Souhila Siagh, 2024. "Setting up a Sovereign Wealth Fund to Reduce Currency Crises," AMSE Working Papers 2417, Aix-Marseille School of Economics, France.

    More about this item

    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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