SWFs Raise the Bar: From Passive Shareholders to Active Investors

(January 14, 2010) — After the 2008 global financial crisis that made investors increasingly conscious of risk, sovereign wealth funds will raise the bar in managing their investments, according to State Street Corp., the world’s biggest money manager for institutions with $1.7 trillion under management.

In 2007, several SWFs bought into major banking and financial groups, withholding their rights to exercise shareholder votes in some companies, reports IPE.com. Today, Boston-based State Street Corp. said SWFs will start taking more active roles in the companies in which they invest, reports Bloomberg.

“I do think that in 2010 shareholder governance is an important topic” for the funds, said John Nugee, the London-based managing director of the official institutions group at State Street Global Advisors, in a phone interview with Bloomberg. “The totally passive approach of: we will not use our votes, we will not claim our directorships, I don’t think anybody believes that that is the optimal way forward.”

State Street Global Advisors, the investment management arm of State Street Corp., conducted a study that showed the 37 biggest SWFs worldwide amount to $3 trillion in total, or an average of $85 billion each. At least eight of those are worth $100 billion or more. Some of those funds were created specifically to assist in public pension management. About 70% of the world’s sovereign wealth is based on hydrocarbons, such as oil or gas, and nearly half of it is based in the Middle East, with a further quarter in Asia, according to State Street.