Monitor Group and Fondazione Eni Enrico Mattei Release First Joint Annual Report on Sovereign Wealth Funds

"Despite the dramatic role that SWFs have played in the international economy, there is a great deal of misunderstanding surrounding them," said William Miracky, a senior partner at Monitor Group. "This report shows that SWFs still remained important sources of liquidity and economic investment, even as they substantially revised their investment strategies during the economic crisis."

To address the need for mutual sharing of data around SWFs, Monitor and Fondazione Eni Enrico Mattei (FEEM) partnered to create one of the largest and most comprehensive databases on global SWF deals. Drawing on their analysis of SWF transactions over the course of 2008, Monitor Group's analysis concludes that the global economic crisis has manifested a profound effect on investment strategy. Key findings include:

-- Despite the crisis, the volume of investment activity remained substantial, though the total dollar value of SWF deals declined later in the year, dropping from $67.8 billion in Q1 of 2008 to $35.1 billion in Q4.

-- During the crisis, SWFs lost at least $55.8 billion on paper from their initial investments. This performance is driven primarily by their large exposure to the financial services sector, but also likely due to unfortunate stock picking or a tendency to invest in distressed industries as a way to minimize political or PR opposition.

-- Nonetheless, and despite representing a declining share of overall deal activity, the financial services sector continued to be an important target for SWF investment. In 2008, it accounted for 28 percent of the deals, worth 75 percent of the total value ($96.2 billion).

-- As the year progressed and the economic crisis spread, many funds importantly shifted their investment strategies, retreating from distant markets and increasing domestic and regional investments, particularly in emerging markets. In Q4 of 2008, as funds sought to prop up local economies, domestic investment by SWFs made up over 40% of all deals, the highest level since 2002. In the same quarter emerging markets investments amounted to over 70% of SWF deal value for the first time since 2004.

Sovereign Wealth Funds Defined

In addition, a lack of clarity and consensus around what defines a SWF prompted Monitor and FEEM to formulate a global definition to structure discussion and research. Monitor and FEEM define a SWF on the basis of the essential characteristics that differentiate them from other government-owned investment vehicles. Specifically, a SWF must meet the following five criteria:

1. It is owned directly by a sovereign government

2. It is managed independently of other state financial institutions

3. It does not have predominant explicit pension obligations

4. It invests in a diverse set of financial asset classes in pursuit of commercial returns

5. It has made a significant proportion of its publicly-reported investments internationally

The 2008 annual report also includes exclusive content from Monitor's team of renowned international experts and Andrew Rozanov, who is credited with coining the term, "Sovereign Wealth Funds." The data compiled covers over 1,150 deals from 17 funds in 11 different countries, for the period between January 1, 1981 and December 31, 2008. At present, 31 funds, from 23 nations meet Monitor and FEEM's criteria of a SWF.

Weathering the Storm is the latest in a series of reports and quarterly updates documenting and assessing sovereign wealth fund activity, which commenced last year with the report, Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy. Last week, Monitor released Testing Time: Sovereign Wealth Funds from the Middle East and North Africa and the Global Financial Crisis. All these reports are available at www.monitor.com.

For media inquiries around the report please contact Jordan Lubowitz (jlubowitz@racepointgroup.com). For all other inquiries please contact Edward Chin (edward_chin@monitor.com).

About Monitor Group

Monitor Group works with the world's leading corporations, governments and social sector organizations to drive growth on the issues that are most important to them. The firm offers a range of services - advisory, capability-building and capital services - designed to unlock the challenges of achieving sustained growth. Founded in 1983 by six entrepreneurs, including Harvard Business School Professor Michael Porter and Monitor's current Chairman Mark Fuller, Monitor brings leading edge ideas, approaches and methods to bear on clients' toughest problems and biggest opportunities. Headquartered in Cambridge, Massachusetts, the firm employs over 1,500 people in 22 countries worldwide. For more information visit www.monitor.com.

SOURCE: Monitor Group

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