How Do You Manage That Much Money?
How Do You Manage That Much Money?
Though a good problem to have, sovereign wealth funds struggle with how to manage the amount of money entrusted to them. Sovereign wealth funds have competing financial, economic, political, and business mandates. From maximizing risk adjusted returns to promoting economic development and diversification to creating national champions or stable earnings for future generations, sovereign wealth funds face a difficult task in managing the competing expectations. This chapter will focus on the investment challenges and objectives of managing such large amounts of money. Though there is little evidence that sovereign wealth funds are using their investment capital to leverage political foreign policy victories, their success as investors is mixed. Rather than confusing their public policy and investment mandates, sovereign wealth may open up additional opportunities for partner firms through their privileged position though firm performance remains mixed. Sovereign wealth funds appear willing to accept different levels of risk through their asset allocation. Whether holding large amounts of cash or short term fixed income securities or a riskier portfolio of equities and alternative investments, countries reveal divergent risk levels in their portfolios. Though a good problem to have, countries are taking a different approach to managing the new found wealth.
Keywords: sovereign wealth fund, institutional investor, national wealth, commodity, risk, portfolio management, asset allocation, oil price, hedging
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