Are Government Owned Investment Funds Created Equal? Evidence from Sovereign Wealth Fund Real Estate Acquisitions
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Are Government Owned Investment Funds Created Equal? Evidence from Sovereign Wealth Fund Real Estate Acquisitions Peng Liu 1 & Nathan Mauck 2 & S. McKay Price 3 # Springer Science+Business Media, LLC, part of Springer Nature 2019
Abstract Sovereign Wealth Funds (SWFs) are an institutional investor class about which relatively little is known. Even though they have trillions of dollars in assets under management, their (typically) highly secretive nature renders them difficult to analyze in an academic context. We utilize transactional data from the Sovereign Wealth Fund Institute to provide the first academic analysis of SWF real estate investment activity of which we are aware. To better understand this growing investor class, we compare SWFs with their most closely related institutional group, public pension funds (PPFs). While both SWFs and PPFs are state owned investment funds, we find SWFs have lower Stone and Truman (2016) best practice scores (based on fund structure, governance, transparency and accountability, and behavior.) Further, while both SWFs and PPFs show increasing levels of cross-border real estate investment, SWFs are significantly more likely than PPFs to invest across international borders. We find the percentage of SWF cross-border real estate investment to be substantially higher than the percentage of SWF cross-border investment in public and private equity documented in other studies. Moreover, in a subsample of acquisitions in the U.S., cross-border real estate investments are in locations with lower capitalization rates than domestic acquisitions for both SWFs and PPFs, and there is no discernable difference in rates across the two fund types, on average. Keywords Sovereign wealth funds . Real estate investment . International real estate .
Foreign investment . Cross-border investment . Public pension funds JEL Classification F21 . G11 . G23 . O16 . O18 . P52
* S. McKay Price [email protected] Extended author information available on the last page of the article
Introduction The aim of this study is to examine sovereign wealth fund (SWF) investment in real estate. Broadly defined, SWFs are state-owned pools of capital that invest globally in a wide range of assets including stocks, bonds, precious metals, hedge funds, private equity funds, and real estate. These unique institutional investors “are growing more rapidly than any other class of large global investors” (Megginson and Fotak 2015, pp. 733–734) with roughly $7.5 trillion in assets under management as of the end of 2016 according to the Sovereign Wealth Fund Institute.1,2 Yet, little is known about them. The dearth of knowledge about SWFs relative to other institutional investors (e.g. public pension funds) is largely due to data limitations. Namely, SWFs are generally not required to disclose anything to anyone other than to their own governments, where portfolio and transaction details are often tightly held. Consequently, the extant research in this area focuses almost exclusively on SWF investment in public equities whe
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