Sovereign Wealth Funds’ Internationalization Strategies: The Use of Investment Vehicles

In this work, we study the strategies driving cross-border sovereign wealth fund (SWF) investments worldwide. In particular, we investigate how SWFs internationalize their activities, studying whether the use of investment vehicles as signal of passive investment approach to access foreign markets is influenced by SWF- and deal-specific characteristics and the presence of bilateral trade agreements between the SWF’s and the target country. We use a new dataset on SWF investments, whose size is comparable with the datasets used in the most popular SWF studies. Our probit and multinomial logit estimates show that fund opacity, fund politicization, strategic industry targets, and majority ownership choices lead to a more likely use of vehicles, while bilateral trade agreements negatively affect such investment strategy. When we disentangle the different types of vehicles and their geographical location, we find that fund opacity increases the likelihood to use SWF-controlled vehicles, while fund politicization, strategic industry targets, and majority ownership choices increase the likelihood to use a corporate vehicle. While, bilateral trade agreements reduce the use of corporate vehicles. As to the geographic location of the vehicle, politicized foreign SWFs are more likely to invest through vehicles located in third countries. Instead, targeting strategic industries leads to invest in vehicles located in the target country. Our results control for SWFs’ strategic goals, SWF experience (reliance on external managers or advisors, fund size), type of funding sources, crisis period, deal-specific effects, and legal and institutional differences across countries and over time.