Determinants of sovereign wealth fund investment in private equity

This paper examines investment patterns of 50 sovereign wealth funds (SWFs) in nations around the world. We study investment by SWFs in 903 public and private firms over the period 1984-2009. As expected, we observe SWFs investments are more often in private firms when the market returns of target nations are negatively correlated to the market returns of the SWF nations. But counter to expectations, the data indicate that SWFs are more likely to invest in private firms of target nations with weaker legal conditions, and when the legal differences between the SWF country and the target country are more pronounced. This evidence is consistent with strategic rationales for investment and potential corporate governance conflicts.