SovereigNET - Fletcher Network for Sovereign Wealth and Global Capital

Research Archive

SovereigNet offers a multidisciplinary approach to research on sovereign and institutional wealth. Through an array of activities, SovereigNet interacts with academics, fund managers, financial advisors and other experts to collect and distribute information.

To learn more about SovereigNet's activities and research products, click on the tabs below.

By the Numbers: The Quest for Performance

The Fletcher School at Tufts University and State Street’s Center for Applied Research have jointly released timely new research on the investment behavior and performance of institutional investors as we pass the 5 year mark since the collapse of Lehman and the onset of the Global Financial Crisis.  The study - “By the Numbers: The Quest for Performance” - is the first in a series of joint publications to be released as part of a collaborative initiative, focusing on the most pressing issues of the global institutional investor community. Using empirical analysis, supplemented by survey reviews and manager interviews, the study isolates critical factors driving innovation in meeting the performance challenges of investors in the post-crisis world.  The research traces the investment patterns of large institutional investors across an extensive asset profile diversified by geography and distinguished by a broad use of alternative assets and strategies.  It finds that these patterns have expanded since the global financial crisis and are accompanied by heightened concerns about return volatility, a structural convergence of correlations between asset classes and the real risk of tail events.  The study’s prescriptive conclusions have broad applicability across variety of asset owners and will be of interest not only to large institutions, but also foundations, small endowments, family offices and even high net worth individuals.

Entry into US Credit Markets by Sovereign Wealth Funds and Enterprises Controlled by Sovereign Wealth Funds

Recent developments have brought the structure of commercial lending platforms into sharp focus.  The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) imposes new restrictions and requirements on foreign banking organizations that are bank holding companies or are treated as bank holding companies under US law.  Meanwhile, collateralized loan obligation funds, as well as mutual funds that invest in commercial loans and loan participations, signal an active commercial credit market, with intense investor interest in exposures to quality commercial loans.  At once a US commercial lending platform is highly desirable yet carries significant barriers to entry, particularly for non-US lenders. 

Sovereign Investing and Corporate Governance

Sovereign wealth funds (SWFs) are increasingly important players in equity markets in the United States and abroad. However, despite their economic power, their reach, and their desirability as investors, SWFs are almost entirely disengaged from corporate governance matters in U.S. firms. Indeed, with the exception of Norway’s Government Pension Fund-Global, SWFs are notable primarily for their passivity as shareholders.

Complying with the SEC’s Conflict Minerals Rules

On August 22, 2012, the U.S. Securities and Exchange Commission (the “SEC”) adopted new rules (the “Conflict Minerals Rules”) pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requiring specialized due diligence and disclosure regarding the use of “conflict minerals” by issuers registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Conflict Minerals Rules are intended to help end human rights abuses in the Democratic Republic of the Congo (“DRC”) and adjoining countries by reducing the financing of armed groups that benefit from commercial activity involving conflict minerals.

M&A in the United States: What Chinese Cleantech Companies Need to Know about CFIUS Review in 2013

China’s investments abroad have increased rapidly and will continue to grow in order to acquire advanced technology, real estate, market channels and other assets. China’s outbound direct investment has risen 30% to $77.1 billion in 2012. As part of its twelfth Five-Year Plan, Chinese government encourages international M&A, with the aim of making the dollar amount of outbound investment match inbound investment by 2015.

The Informality of the International Forum of Sovereign Wealth Funds and the Santiago Principles: a Conscious Choice or a Necessity? - Abstract

The present contribution examines the International Forum of Sovereign Wealth Funds (IFSWF) under the spectrum of Informal International Lawmaking (IN-LAW).

Find the online published paper at

Institutional Investor Asset Management in Low Return/High Risk World

Eliot Kalter’s presentation to the State Street Middle East Client Retreat, 26-27 February, 2013

Sovereign Wealth Funds: From Investment Goals to Asset Allocation Models

Patrick J. Schena’s presentation to the Boston Securities Analyst Society, 14 March, 2013

Central Bank Diversification Strategies: Rebalancing from the Dollar and Euro

In the face of a decline in gold prices in the past weeks, Jin Liqun, head of the supervisory board of the China Investment Corporation, recently asserted the long-term importance of the gold as a reserve asset.  In 2010 central banks became net buyers of gold for the first time in 2 decades.  In 2012, the trend in fact accelerated, in part attributable to an active rebalancing of central bank portfolios away from dollars and euros.  With these shifts in portfolio allocations as a backdrop, Fletcher alumnus Ashish Bhattia of the World Gold Council, examines the role of gold as a reserve asset.  His study finds that gold’s continuing appeal is driven by both its consistently low correlation with other primary reserve assets and its deep liquidity. The study demonstrates that while the profile of Australian, Canadian, and Chinese assets has risen considerably, the lack of liquidity in these markets has detracted at present from their playing a meaningful diversification role.

Hunter or Prey: Only Time Will Tell

In some ways, Italy today epitomizes state capitalism.  As shareholder, regulator, enforcer, and investor, the Italian government is engaged both directly and indirectly as an actor in the local economy and the financial system.  In this penetrating assessment of foreign, and in particular, sovereign, investment in Italian assets, SWFI Affiliate Francesco Galietti brings his considerable analytical skills to bear on sovereign investment in Italy and the evolving role of the newly established Fondo Strategico Italiano and its parent La Cassa Depositi e Prestiti.

Leviathan’s Double Bottom Line: Sovereign Wealth Funds as Tools of Strategic Statecraft

In recent months, the issues posed by sovereign debt have to some extent overshadowed the steadily emerging role sovereign wealth.  2012 underscored the growing importance of sovereign wealth funds, with several nations announcing fund launches.  Also, an increasing number of established funds have become more comfortable openly wielding influence in some of the year's largest cross-border deals.  Sovereign funds' economic and financial influence, either directly or via "implication", has potentially impactful foreign policy outcomes.  In this thought-provoking study, her MIT-Sloan thesis, Shannon Murphy explores key questions and implications of the political and economic convergence inherent in sovereign wealth investment. The shift in global capital flows from non-OECD to developed nations has brought increased scrutiny to state investing. By examining the cases of China, Abu Dhabi and Qatar specifically, her research examines the role of state, through SWFs, in pursuit of a “double bottom line” marked by both financial, as well as political or strategic payoffs.

The Vultures v. The Delinquent Sovereign: The Fight over Argentine Bonds in NML Capital, Ltd. v. Republic of Argentina

In 2001, the Republic of Argentina defaulted on over $100 billion worth of sovereign bonds.  Under a restructuring program, a majority of the bondholders agreed to accept a 75% “haircut”.  However, a minority group, including some hedge fund creditors, refused the deal and is seeking to collect monies owed under the 2001 default.  The case has received considerable coverage.  In this analysis, our partners at K&L Gates, led by Fletcher Professor and K&L Partner Thomas Holt, use the case examine the broader issues surrounding sovereign debt and the remedies available to creditors.  Rather than focusing on the state as investor, this study considers the implications to institutional investors of the sovereign as creditor.  Holders of sovereign debt face a risk that creditors of private enterprises do not: a defaulting sovereign can close its courts to its creditors as they seek to collect what is indisputably owed them.

Changes Afoot at CIC

With the appointment of Lou Jiwei as Minister of Finance, the chairmanship of the China Investment Corporation has remained vacant for about one month.  The demands of the role suggest that the next chairman have mastered both the technical financial, as well as the political skills that the position requires.  In this short background piece, Professors Schena and Brookfield frame the leadership succession in the broader context of the institutional challenges, which currently confront the CIC.  The position remains unfilled as we go to press, but perhaps not for long.

Growing a Middle East Middle Class: Where a Small Investment Goes a Long Way

Elissa McCarter, Vice President of Development Finance at CHF International, explores the tremendous opportunities presented by the political and social transformation of the Arab Spring to address the economic disparity and lack of opportunity faced by a rising middle class. Small amounts of investment can play a catalytic role in supporting entrepreneurship and the growth of micro and small businesses in the Middle East, where more equitable economic growth and job creation is becoming imperative to survival. This article describes the role that these small amounts of investment can play and examines some of the models that have been used effectively to leverage private investment for the benefit of low and medium incomes families, highlighting the case of CHF International and its experience in bringing private capital to underserved markets in four countries in the Middle East. (Fall 2012)

Sovereign Wealth Funds and Social Finance: The Case for Islamic Finance and Impact Investing

With the continuing political turmoil in the Middle East region and financial uncertainties in the global economy, governments in the MENA region are facing fiscal and budgetary constraints in trying to address the perennial issues of economic development, poverty alleviation, and jobs. In this piece, co-authors and SWFI Research Affiliates Shatha al-Aswad and Asim Ali argue that Islamic finance’s focus on moral and social objectives, and sovereign wealth funds, as long-term investors, are ideally positioned to pursue “Impact Investing” – making investments that generate social and environmental value as well as financial return – to foster social impact and economic development in the broader economy. (Fall 2012)

Sovereign Investment Vehicles and the Case for Social Returns: Toward a Research Agenda

While SWFs unequivocally seek financial returns as a result of various mandates, there is considerably less agreement on the extent to which SWFs pursue other non-financial strategic objectives, including those in support of national policy agendas related to, for example, economic or national security.  In this research note, SWFI Co-Head Patrick Schena and SWFI Research Assistants Kanishk Bishnoi and Nicholas Roose propose to move this discourse in a new direction and so posit the question: Are sovereign investment vehicles candidate investors in projects or products with dual return structures that include the expressed goal of generating social returns? (Fall 2012)

Defining an Ecosystem for Social Finance

The ecosystem that supports social finance represents an impressive confluence of actors and institutions.  This piece, by SWFI Research Assistants Kanishk Bisnhoi and Nicholas Roose, provides an introductory overview of the social finance ecosystem across a broad institutional and functional spectrum—attempting to not only to define discrete entities, but to also establish linkages between and among the components of the system. (Fall 2012)

Institutional Investor Asset Management in a Low Return/High Risk World

In this presentation delivered at the Institutional Investor Americas Government Funds Roundtable in September 2012, SWFI Co-Head Eliot Kalter explores the global financial and economic environment and details the drivers in asset allocation and diversification by institutional investors within these new parameters.

A Conversation with Mr. Ewart Williams, Governor, Central Bank of Trinidad and Tobago

In June Sovereign Wealth Fund Initiative co-heads Eliot Kalter and Patrick Schena had the occasion to hold an extended conversation with Mr. Ewart Williams, outgoing Governor of the Central Bank of Trinidad and Tobago and Head of the country’s Heritage and Stabilization Fund (HSF).  In this lively and candid interview, Governor Williams graciously shared his experiences on the foundation of the HSF, its constitution, and operating model.  His comments are insightful in furthering a deeper understanding of the structural and organizational challenges of new sovereign wealth funds during their formative years. (Summer 2012)

Attracting Talent to the Frontiers of Finance

In the aftermath of the financial crisis, institutional investors have become increasingly dissatisfied with traditional institutions of finance and investment, driven in part by high fees and poor returns, this as the number of institutional investors expands in geographic reach, well beyond the bounds of traditional financial centers. As these investors reconsider their approach to deploying capital, many are making direct investments through in-house teams that bypass established financial intermediaries. Jagdeep Singh Bachher, of the Alberta Investment Management Co., and Ashby Monk, of Stanford University, examine the significant human resource challenges of establishing a world-class investment organization on what they refer to as the “frontiers of finance.” (Summer 2012)

On the Need to Rethink the Endowment Model…Again

Has the “endowment model” run its course?  SWFI Co-Heads Eliot Kalter and Patrick Schena revisit the asset allocation strategies of institutional investors, including endowments. They reflect on investment trends since the 2008 financial crisis and advance an agenda for new research that extends the dialogue on asset allocation to a broader and more critical analysis of what they view as key drivers of investment strategy or what they refer to as the three “L’s”: the role of liability structures, liquidity risk, and long-term investment horizons. (Summer 2012)

Regulatory Reform and its Implications for SWF Risk Management in the “New Era”

Ron D’Vari is CEO and Co-Founder of NewOak Capital Advisors, a New York-based advisory firm that provides credit analysis, analytics, and research, dispute resolution and litigation consulting services, and risk advisory and mitigation solutions to global clients.  Writing here, Dr. D’Vari dissects the risk management challenges posed to sovereign investors by a changing regulatory landscape, especially as it relates to the trading of OTC derivatives.  He navigates through the intricate shoals of proposed regulatory reforms linked to the trading of complex securities and calls for readiness even as the regulatory framework itself continues to emerge. (Summer 2012)

Chinese Banks Controlled by Sovereign Wealth Funds Receive Key Approvals from Federal Reserve, Highlighting Treatment of Sovereign Wealth Funds under US Banking Laws

Can and should sovereign wealth funds become bank holding companies in the US? Actually, under a May, 2012 Federal Reserve Board ruling, they have. Sean Mahoney and Eric Yoon, of K&L Gates, analyze this FRB action, which permits the China Investment Corporation, and its subsidiary Central Huijin Investment, to become bank holding companies by acquiring up to 80 percent of the voting shares of The Bank of East Asia (U.S.A.). The significance of the ruling is in its affirmation that sovereign wealth fund investments in US banking organizations will be analyzed under the same framework applicable to other investors, including full transparency as to ownership structure. (Summer 2012)

Building Capacity for Geopolitical Risk Analysis

The ever-evolving state of global politics ensures that unexpected political events will inevitably occur. As this information is absorbed by market participants, associated risks are reflected in changes in the value of affected assets. Incorporating geopolitical risk analysis into a well-developed risk management program can enhance portfolio risk mitigation through effective analysis and planning. In this, his second Bulletin contribution, SWFI Affiliate Dr. David Glancy provides a concise framework and checklists to build institutional capacity to analyze and manage geopolitical risk, as well as geopolitical “opportunities.” (Summer 2012)

Reflections on the Legal Nature of SWFs: Public or Private Investment Beasts?

This contribution by CEME Research Affiliate Eliza Malathouni examines the nature of SWFs as both public and private bodies in an effort to more clearly delineate criteria that contribute to each characterization.  From a procedural point of view, clarifying the nature of SWFs will determine the international courts and/or tribunals in which SWFs have standing. (April 2012)

Regime Changer? Sovereign Wealth Funds and the International Investment System

In the past two decades, the use of bilateral investment treaties as vehicles to facilitate foreign direct investment has expanded significantly, creating an international investment framework so pervasive that it is now characterized as a "regime." This brief considers whether SWF investors can fit within the current investment regime from a jurisdictional perspective, what structural issues SWFs are likely to confront within that regime, the implications of SWF investment on the regime’s putatively "bilateral" structures, and how SWF investments are likely to be accommodated by the regime. The paper is an adaptation of the LLM thesis of David G. Fromm, Fletcher School of Law and Diplomacy, Tufts University 2011. (April 2012)

Domestic Constraints on Sovereign Wealth Fund Investment Activity

Much of the sovereign wealth fund debate has taken place in the international context, and understandably so. However, Jeremy Leong, Assistant Professor at Singapore Management University's School of Law, argues that pre-2008 concerns are no longer salient. Instead of focusing on the most effective way international and/or foreign regulations can discipline SWF investment activity, we need to take an inward analytical turn in the debate. Accordingly, it may be more useful for the debate to look at the domestic legal and structural constraints on SWFs. This article provides an analytical framework, which may be used to discuss domestic regulatory constraints on SWF investments. (April 2012)

FCPA and Other Anti-Corruption Concerns Facing Sovereign Wealth Funds

Sovereign wealth funds wield a staggering amount of financial influence. Given all the money at issue, U.S. prosecutors have expressed a clear concern about the risk of corruption in dealings with these funds.  Indeed, both the U.S. Department of Justice and the U.S. Securities and Exchange Commission have indicated an interest in examining transactions involving sovereign wealth funds for possible violations of the U.S. Foreign Corrupt Practices Act (FCPA). This article, written by a team from K&L Gates LLP, addresses the potential liability that sovereign wealth funds face under three of the most significant antibribery laws:  the U.S. FCPA, the U.K. Bribery Act, and the People’s Republic of China’s Antibribery Laws. (April 2012)

M&A in the United States: What Chinese Companies Need to Know about Exon-Florio Review in the Clean Technology and Other Business Sectors

This article by K&L Gates LLP partners Fred M. Greguras and Michael J. O'Neil and associate Chenhao Zhu focuses on the legal and regulatory hurdles that Chinese companies face when investing in U.S. concerns. While it is not news that Chinese companies are stepping up investments in the U.S., recent developments have shown that at least some of these companies are receiving substantial support from the Chinese government in the form of commitments of foreign reserves.  This is an outgrowth of China’s broader “going out” strategy announcing in July 2009 by Premier Wen Jiabao.  Coupled with increased investment in clean technology, many Chinese companies can expect to run the gauntlet of the Exon-Florio review process. (April 2012) 

A Conversation with Ted Truman, Senior Fellow, Peterson Institute for International Economics

In this edited transcript, SWFI co-heads Eliot Kalter and Patrick Schena discuss with Edwin M. Truman the proliferation of new sovereign wealth funds, current trends in investment decisions, and the future role of the IMF’s International Forum of Sovereign Wealth Funds. Dr. Truman is a noted voice among sovereign wealth fund watchers and scholars. His recent book, Sovereign Wealth Funds: Threat or Salvation? (Peterson Institute, 2010), explores the origins of SWFs and the buildup of international reserves, and unveils a “scoreboard” that ranks funds in 33 variables across four categories: structure, governance, transparency, and accountability. (March 2012)

An Overview of the Nigerian Sovereign Investment Authority

Nigeria officially joined the global SWF fraternity in May 2011 when Nigeria’s President Goodluck Jonathan signed into law the Nigeria Sovereign Investment Authority Act of 2011. The Act establishes the Nigeria Sovereign Investment Authority as a vehicle for the actualization of Nigeria’s SWF aspirations to preserve savings of the Nigerian people, develop domestic infrastructure, and provide stabilization support in times of economic stress. In this paper, Fletcher alumnus John Ezeani analyses the "ring-fenced" structure of the fund, fund allocation and future sources, and the legal challenge the SWF posed. (March 2012)

Drivers of Strategic Asset Allocation Decisions for Sovereign Wealth Funds

Shuvam Dutta, CEME Research Assistant, examines the theoretical underpinnings that have guided the investment philosophy of sovereign wealth, compares how investment mandates have informed actual asset allocation decisions, and offers commentary on some special circumstances posed by funds established in the last ten years. (March 2012)

The China Investment Corporation at 4 Years: An Evolving Legacy of Capitalization and Control

This analysis authored by SWFI co-head Patrick Schena examines the China Investment Corporation and the process of responding to changing global circumstances over its four years of operation. The article reviews CIC’s capital structure, identifies governance challenges stemming from its evolving relationship with China’s State Administration for Foreign Exchange, and an analysis of key issues which impact the optimization of the management of China’s foreign reserves. (March 2012)

SWFs and Egypt: A Fresh Look at Infrastructure Funding and Investments

In this working draft, SWFI Affiliates Asim Ali and Shatha Al-Aswad argue that “neighborly investment” by the Persian Gulf states and their SWFs would be a positive step towards their diversification and development objectives. (March 2012)

SWF Asset Allocation after the Financial Crisis: Increased Diversification Requires Enhanced Political Risk Management

SWFI co-head Eliot Kalter delivered this presentation at the CFA Institute conference in March 2012. The slides cover the diversification of SWF asset allocation and political risk.

Persian Gulf based SWFs & Financial Hubs in Bahrain, Dubai and Qatar: A Case of Competitive Branding

SWFI Affiliates Asim Ali and Shatha Al-Aswad analyze the competitive branding between Bahrain, Qatar, and UAE, from oil, finance, real estate, and automotive to entertainment. As Gulf SWFs pour money into the region, these countries have now turned towards promoting themselves as financial hubs of the regions. Will all succeed or must there be consolidation? (February 2012)

Political Risk – An Important Issue for Sovereign Wealth Funds

Dr. David Glancy, SWFI Affiliate and Assistant Professor (contractor – Booz Allen Hamilton) with the War and Conflict Studies Department at the College of International Security Affairs (CISA) at National Defense University, examines the unique position of Sovereign Wealth Funds when it comes to political risk issues. (February 2012)

Redefining Political Risk Management: The SWF Dimension

Dr. Eliot Kalter, senior fellow and co-head of The Fletcher School’s Sovereign Wealth Fund Initiative and president of EM Strategies, explores how SWFs are subjected to political risk both domestically and externally. (February 2012)

SWFs and the Economic Development Agenda: Reflections on the "Arab Spring"

Elijah Reese, Research Assistant for the Sovereign Wealth Fund Initiative, contributed this thought piece on the role of sovereign wealth funds in contributing to social and economic development amidst civil unrest.

The Libyan Investment Authority Question Mark

Patty Ye Cao, Research Assistant for the Sovereign Wealth Fund Initiative, contributed this thought piece on the questions surrounding the Libyan Investment Authority.

Returning Libya's Wealth

Luke Cadigan, a partner in the Government Enforcement Practice Group in K&L Gates' Boston office, and Laura Prieston, an associate in the Litigation Group in Boston, reflect on Libya's assets as restrictions and sactions ease post Gadhafi.

Proposed Tax Regulations Protect U.S. Tax Exemption for Sovereign Wealth Investors

SWFI Senior Fellow Thomas Holt joins colleagues at K&L Gates, LLP, in this assessment of proposed tax regulations that would make it easier for foreign governments, their instrumentalities and controlled entities – including sovereign wealth funds – to invest in U.S. private funds without losing the U.S. tax exemption. 

Sovereign Wealth Funds, Debt Issuances, and the Development of Capital Markets

SWFI Senior Fellow Patrick Schena and Fletcher Master of International Business candidate Ravi Shankar Chaturvedi examine whether sovereign wealth funds promote the development of capital markets.

The Pros and Cons of an Islamic Sovereign Wealth Fund

In this piece published by Islamic Finance news, K&L Gates Finance Partner Jonathan Lawrence looks at the benefits and disadvantages of the fund as an Islamic entity.

Sovereign Wealth Funds and the Privatization of State Assets: Toward a Life-Cycle Framework

SWFI Senior Fellow Patrick Schena, Fletcher School professor Jonathan Brookfield, and Fletcher MIB candidate Ravi Shankar Chaturvedi contributed this piece to the Monitor Group's 2011 report on sovereign wealth funds.

Sovereign Wealth Funds’ Public Policy and Asset Allocation After the Financial Crisis

In this presentation, CEME Senior Fellow Dr. Eliot Kalter explains the relevance of SWFs, outlines the key attributes of CEME’s Sovereign Wealth Fund Initiative, and explores in depth the issues of asset allocation diversification, socio-political risk, response to recipient country discriminatory practices, and context-appropriate transparency and accountability standards for SWFs.

Euro Zone Crisis and Sovereign Wealth Funds

Dr. Eliot Kalter, senior fellow at The Fletcher School’s Sovereign Wealth Fund Initiative and president of EM Strategies, along with Thomas F. Holt, adjunct professor of law at The Fletcher School and partner in the global law firm K&L Gates LLP, write for Reuters on the “Euro zone crisis and sovereign wealth funds.” (June 2010)

Key International Issues for Sovereign Wealth Funds

This report, a product of CEME’s Sovereign Wealth Fund Initiative (SWFI), is based on discussions with SWF senior decision makers and country authorities from the Gulf Cooperation Countries, Latin America, Singapore, and several industrial countries. From these discussions, SWFI researchers identified and analyzed key international issues from the SWF point of view.

The Sovereign Wealth Fund Initiative in the Context of the International Working Group of Sovereign Wealth Funds

This note describes the role of the CEME’s Sovereign Wealth Fund Initiative (SWFI) in the context of the International Forum and the Santiago Principles from which both take their roots. SWFI provides senior decision-makers with a value-neutral venue and world-class resources to identify key international issues and approaches for better management of external relationships.