Advertisement

Are Government Owned Investment Funds Created Equal? Evidence from Sovereign Wealth Fund Real Estate Acquisitions

  • Peng Liu
  • Nathan Mauck
  • S. McKay PriceEmail author
Article
  • 8 Downloads

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 

Notes

Acknowledgements

This paper has benefited from the helpful comments and suggestions of two anonymous reviewers, Maarten van der Spek (Abu Dhabi Investment Authority) and seminar participants at University College London, San Diego State University, the 2018 ARES Conference, and the 2018 AREUEA National Conference. We also thank Xin Fang for research assistance. A portion of this study was completed while McKay Price was a visiting scholar at the University of Cambridge. All remaining errors are our own.

References

  1. Alhashel, B. (2015). Sovereign wealth funds: A literature review. Journal of Economics and Business, 78, 1–13.CrossRefGoogle Scholar
  2. Andonov, A., Kok, N., & Eichholtz, P. (2013). A global perspective on pension fund investments in real estate. Journal of Portfolio Management, 39, 32–42.CrossRefGoogle Scholar
  3. Andonov, A., Kok, N., & Eichholtz, P. (2015). Intermediated investment management in private markets: Evidence from pension fund investments in real estate. Journal of Financial Markets, 22, 73–103.CrossRefGoogle Scholar
  4. Andonov, A., Bauer, R. M. M. J., & Cremers, K. J. M. (2017). Pension fund asset allocation and liability discount rates. Review of Financial Studies, 30(8), 2555–2595.CrossRefGoogle Scholar
  5. Bernstein, S., Lerner, J., & Schoar, A. (2013). The investment strategies of sovereign wealth funds. Journal of Economic Perspectives, 27(2), 219–238.CrossRefGoogle Scholar
  6. Blundell-Wignall, A., Hu, Y. W., & Yermo, J. (2008). Sovereign wealth and pension fund issues. Financial Market Trends – OECD Journal, 2008, 117–132.CrossRefGoogle Scholar
  7. Bortolotti, B., Fotak, V., & Megginson, W. L. (2015). The sovereign wealth fund discount: Evidence from public equity investments. Review of Financial Studies, 28(11), 2993–3035.CrossRefGoogle Scholar
  8. Boubakri, N., Cosset, J. C., & Grira, J. (2016). Sovereign wealth funds targets selection: A comparison with pension funds. Journal of International Financial Markets, Institutions, and Money, 42, 60–76.CrossRefGoogle Scholar
  9. Bradley, D., Pantzalis, C., & Yuan, X. (2016). The influence of political bias in state pension funds. Journal of Financial Economics, 119, 69–91.CrossRefGoogle Scholar
  10. Calluzo, P., Dong, G. N., & Godsell, D. (2017). Sovereign wealth fund investments and the US political process. Journal of International Business Studies, 48, 222–243.CrossRefGoogle Scholar
  11. Costello, J. (2016). Cross-border investment in US commercial real estate. NAIOP Development Magazine. http://www.naiop.org/en/Magazine/2016/Spring-2016/Finance/Cross-border-Investment-in-US-Commercial%2D%2DReal-Estate.aspx
  12. Dewenter, K. L., Han, X., & Malatesta, P. H. (2010). Firm values and sovereign wealth fund investments. Journal of Financial Economics, 98, 256–278.CrossRefGoogle Scholar
  13. Dyck, I. J. A., & Morse, A. (2011). Sovereign wealth fund portfolios. Working paper. University of California, Berkeley and University of Toronto.Google Scholar
  14. Fama, E., & French, K. (1997). Industry costs of equity. Journal of Financial Economics, 43, 153–194.CrossRefGoogle Scholar
  15. Freybote, J., & Seagraves, P. A. (2017). Heterogeneous investor sentiment and institutional real estate investments. Real Estate Economics, 45(1), 154–176.CrossRefGoogle Scholar
  16. IWG (International Working Group of Sovereign Wealth Funds). (2008). Sovereign wealth funds generally accepted principles and practices, Santiago principles.Google Scholar
  17. Johan, S., Knill, A., & Mauck, N. (2013). Determinants of sovereign wealth fund investments in private equity vs public equity. Journal of International Business Studies, 442, 155–172.CrossRefGoogle Scholar
  18. Karolyi, G. A., & Liao, R. (2017). State capitalism’s global reach: Evidence from foreign acquisitions by state-owned companies. Journal of Corporate Finance, 42, 367–391.CrossRefGoogle Scholar
  19. Knill, A., Lee, B. S., & Mauck, N. (2012). Bilateral political relations and sovereign wealth fund investment. Journal of Corporate Finance, 18, 108–123.CrossRefGoogle Scholar
  20. Kotter, J., & Lel, U. (2011). Friends or foes? Target selection decisions of sovereign wealth funds and their consequences. Journal of Financial Economics, 101, 360–381.CrossRefGoogle Scholar
  21. Lieser, K., & Groh, A. P. (2014). The determinants of international commercial real estate investment. Journal of Real Estate Finance and Economics, 48, 611–659.CrossRefGoogle Scholar
  22. Malpezzi, S., & Shilling, J. D. (2000). Institutional investors tilt their real estate holdings toward quality, too. Journal of Real Estate Finance and Economics, 21(2), 113–140.CrossRefGoogle Scholar
  23. Mauck, N., & Price, S. M. (2017). Determinants of foreign versus domestic real estate investment: Property level evidence from listed real estate investment firms. Journal of Real Estate Finance and Economics, 54(1), 17–57.CrossRefGoogle Scholar
  24. Mauck, N., & Price, S. M. (2018). Governance and international investment: Evidence from real estate holdings. Journal of Real Estate Research, 40(4), 475–521.Google Scholar
  25. Megginson, W. L., & Fotak, V. (2015). Rise of the fiduciary state: A survey of sovereign wealth fund research. Journal of Economic Surveys, 29(4), 733–778.CrossRefGoogle Scholar
  26. Miracky, W. F., & Bortolotti, B. (Eds.). (2009). Weathering the storm: Sovereign wealth funds in the global economic crisis of 2008. Boston: Monitor Group and Milan, Italy: Fondazione Eni Enrico Mattei.Google Scholar
  27. Stone, S. E., & Truman, E. M. (2016). Uneven progress on sovereign wealth fund transparency and accountability. Peterson Institute for International Economics.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Singapore Tourism Board Distinguished Professor in Asian Hospitality ManagementCornell UniversityIthacaUSA
  2. 2.University of Missouri - Kansas CityKansas CityUSA
  3. 3.Collins-Goodman Chair in Real Estate FinanceLehigh UniversityBethlehemUSA

Personalised recommendations