Into the institutional Void – Managing the Sovereign Wealth of Emerging Economies

by Eliot Kalter, Patrick J. Schena

The goal of this note is to offer an analytical overview of the roles and investment practices of Sovereign Wealth Funds (SWFs) in emerging economies.

The focus is to examine both the recent growth of sovereign investment vehicles, as well the investment patterns of these entities in order to understand their role in the overall development agenda of an economy.

In section 1 the note briefly defines and explains the raison d’etre of the sovereign investment vehicle.

In section 2 it considers the emergence and growth of SWFs in the emerging economies. The focus is to establish a premise of SWFs as distinctly emerging market institutions that are designed to address the challenges of development and economic growth. We document the rapid expansion of SWFs in emerging economies since 2000, explore the drivers for such growth and the paradox of an outbound investment agenda relative to the needs of national development.

In section 3, it focuses discretely on the tensions created by an inward investment program.

Finally in section 4 it summarizes the authors’ findings and offers reflections to consider the way forward for SWFs in emerging economies, including the challenges that remain.

Note: This paper analyzes the evolution and role of SWFs in emerging markets in the context of economic institutional-building.  It first appeared as Chapter 3 in the 2013 Euromoney release, Kamar Jaffer ed, Investing in Emerging and Frontier Markets. Both hard copy and ebook versions of Investing in Emerging and Frontier Markets are available for purchase at Euromoneybooks.com.

Into the institutional Void – Managing the Sovereign Wealth of Emerging Economies