Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy

Sovereign investors, such as sovereign wealth funds, government pension funds, and central bank reserve funds, have become the most influential capital markets players and investment firms with $30 trillion in assets under management. They have helped foster the rise of the digital economy by providing long-term capital to transformative players and maintaining a low profile in global markets. However, they are often misunderstood and viewed as purely driven by political aims, leading to controversies around sovereign investors and capital markets, governments, new technologies, cross-border investments, and related laws and regulations.

Format: Paperback / softback
Length: 384 pages
Publication date: 26 November 2020
Publisher: John Wiley & Sons Inc

The power dynamics in financial markets are complex and multifaceted, with a multitude of actors and institutions playing significant roles. While large investment banks, big asset managers, and hedge funds have historically been the dominant players, a new group of sovereign investors has emerged as the most influential capital markets players and investment firms. These sovereign investors, which include some of the world's largest sovereign wealth funds, government pension funds, central bank reserve funds, state-owned enterprises, and other sovereign capital-enabled entities, have amassed $30 trillion in assets under management (super asset owners).

One of the key factors that have propelled sovereign investors to the forefront of the investment world is their ample resources. With vast sums of capital at their disposal, they can pursue a range of investment strategies, including passive investing, which has gained popularity in recent years. Sovereign investors also have a long-time horizon, allowing them to make investments that may not yield immediate returns but can have a significant impact on the long-term growth and stability of companies and economies.

Another factor that sets sovereign investors apart is their preference for lower profile, passive investing. Unlike some of their more aggressive counterparts, they tend to avoid high-profile deals and instead focus on long-term investments that align with their sustainability and diversification goals. This approach has helped to create and sustain an environment that has fostered the rise of transformative players in the digital economy, such as Uber, Alibaba, Spotify, and others.

Sovereign investors' need to diversify globally and by sector has also played a significant role in shaping the investment world. With the rise of emerging markets and the increasing interconnectedness of the global economy, sovereign investors have sought to diversify their portfolios to mitigate risks and capture opportunities. This has led to a greater focus on investments in sectors such as technology, healthcare, and renewable energy, which have the potential for long-term growth and stability.

Despite their increasingly important impact, sovereign investors remain mostly unknown and often misunderstood. Many view investments made by sovereign investors as purely driven by political aims, rather than by economic considerations. This perception is largely due to the lack of transparency and questionable governance controls that are often associated with sovereign investors.

One of the concerns that investors have about sovereign investors is their lack of transparency. Sovereign investors are often state-owned entities or government-related institutions, which means that they are not subject to the same level of disclosure requirements as private investors. This can make it difficult for investors to understand the underlying investments and risks associated with these investments.

Another concern is the potential for corruption and non-financially or non-economically motivated investments by sovereign investors. Sovereign investors may be influenced by political or social factors that may not align with the interests of their investors. This can lead to investments that are not in the best interests of the investee nation or that may expose it to risks of unfair competition, data security, corruption, and non-financially or non-economically motivated investments.

The current global tensions around the AI race and tech competition, as well as the COVID-19 pandemic, have further highlighted the concerns that investors have about sovereign investors. Sovereign investors, with their vast resources and long-term horizon, may be seen as potential competitors or threats to the interests of other countries. This has led to increased scrutiny and regulation of sovereign investments, particularly in emerging markets.

Despite these concerns, sovereign investors continue to play a significant role in the investment world. They have the potential to drive innovation, promote sustainable development, and support the growth of companies and economies around the world. However, it is important for investors and policymakers to understand the risks and benefits of sovereign investments and to work together to ensure that they are made in the best interests of all stakeholders.

In conclusion, sovereign investors have emerged as the most influential capital markets players and investment firms in the world. With their ample resources, long-term horizon, preference for lower profile, passive investing, and need to diversify globally and by sector, they have helped to transform the investment world and foster the rise of transformative players in the digital economy. However, their lack of transparency and questionable governance controls have raised concerns among investors and policymakers. It is important for investors and policymakers to work together to ensure that sovereign investments are made in the best interests of all stakeholders and that they are made in a transparent and accountable manner.

Weight: 602g
Dimension: 153 x 228 x 26 (mm)
ISBN-13: 9781119746607