Is CalPERS a Sovereign Wealth Fund?

Sovereign Wealth Funds (SWFs) are the subject of intense debate. While these funds are hard to define in precise terms, all agree they are government-sponsored pools of financial assets. With roughly $3 trillion under management today and forecasts that suggest this number could approach$10 trillion in under a decade, many wonder what role these public investment funds will play in private markets. Due to SWFsí government sponsorship, some fear that they will be used illegitimately to advance political, instead of commercial, agendas. This geopolitical concern is compounded by a general lack of transparency and a perception among Western analysts of weak accountability and poor governance practices...

Sovereign Wealth Funds: Form and Function in the 21st Century

As representatives of nation-states in global financial markets, sovereign wealth funds (SWFs) share a common form and many functions. Arguably their form and functions owe as much to a shared (global) moment of institutional formation as they owe their form and functions to the hegemony of Anglo-American finance over the late 20th and early 21st centuries. We distinguish between the immediate future for SWFs in the aftermath of the global financial crisis, and two possible long-term scenarios; one of which sees SWFs becoming financial goliaths dominating global markets, while the other sees SWFs morphing into nation-state development institutions that intermediate between financial markets and the long-term commitments of the nation-state sponsors. If the former scenario dominates, global financial integration will accelerate with attendant costs and benefits. If the latter scenario dominates, SWFs are likely to differentiate and evolve, returning, perhaps, to their national traditions and their respective places in a world of contested power and influence. Here, we clarify the assumptions underpinning the conception and formation of sovereign wealth funds over the past twenty years or so in the face of the ‘new’ realities of global finance.Sovereign Wealth Funds, Crisis, Market Performance, Long-term Investment

The economic geography of pension liabilities

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Institutional Change in the Era of Globalization: A Comparison of Corporate Pension Policies in Japan and the U.S.

The relationship between globalization and institutional change is an issue frequently debated in economic geography and the social sciences. Some see firms, whatever their national culture or heritage, as facing common market forces that undermine self-determination and predict convergence towards a set of global best practice. Others are sceptical, arguing that different country-specific 'varieties of capitalism' have market distorting effects due to long-established differences in domestic institutions, resulting in path dependence that limits the strength of global incentives to converge at the firm-level. Others still are unconvinced by both these arguments. As such, this paper seeks to advance our understanding of globalization's impact on institutional change by adopting a firm-based perspective that tests whether the Japanese corporate pension experience parallels US corporate pension experiences. This allows for certain path dependence axioms to be tested. This paper finds that American and Japanese pension sponsors, despite clear manifestations of societal differences, have had similar private pension experiences. So, some of the predictions held by path dependence and the varieties of capitalism are not confirmed in this case. However, convergence towards a 'best practice' pension solution is also rejected. As such, the paper concludes that emerging concepts from the geography of finance may provide useful insights

Pension Buyouts: What Can We Learn From The UK Experience?

Managing (or at least slowing) the decline of private defined benefit (DB) pensions has been a top priority for US policymakers. Any market-related developments or regulatory changes that alter the provision or sustainability of private DB pensions in other countries are thus relevant to policy and worth understanding. One such development taking place in the United Kingdom, pension fund buyouts, has enjoyed measured success. A DB pension bulk buyout refers to a transaction in which a pension plan sponsor pays another company a fee to take over the assets and liabilities of the pension plan. Clearly such transactions are relevant to the provision and long-term sustainability of this institution. So, while the increasing popularity of these transactions is restricted to the UK, the market has garnered the attention of US financial services firms, plan sponsors and policymakers. This paper thus analyzes the growing market for DB pension buyouts in the UK and considers its implications for the US. It contributes to our understanding of the future prospects for employer-sponsored defined benefit pensions, and how they will contribute to retirement income over time.Using various qualitative methodologies, this paper traces the evolution of the buyout from a transaction for insolvent plan sponsors to a transaction for solvent plan sponsors with funded pensions. While certain types of solvent buyouts have fallen out of favor, such as non-insured buyouts, the paper concludes that buyouts of the insured variety have a bright future. The increasingly burdensome nature of the DB pension plan will sustain this market over the long-term.

The geography of pension liabilities and fund governance in the United States

If finance is the engine driving economic and geographic change, then pensions are its primary vehicle. On the one hand, pension-plan assets, which approached US18 trillion in 2005 for OECD countries, are having global impacts on financial markets. On the other hand, pension-plan liabilities, larger than the assets in nominal terms, are also having dramatic impacts on plan sponsors. If assets are not properly managed, pension liabilities can threaten the financial solvency of plan sponsors. Consequently, owing to the enormous and growing financial and political importance of pension plans, I contend that the procedures governing these institutions are of increasing importance for economic geographers. In this paper the effectiveness of the current governance system is tested through a widely subscribed ‘expert survey’. Then, the relationship between pension-fund governance and economic geography is demonstrated through case study. I conclude that the current governance model remains inadequate. Moreover, poor pension-fund governance, in addition to having an economic cost, is shown to have tangible geographic impacts.

Sovereignty in the era of global capitalism: the rise of sovereign wealth funds and the power of finance

Over the past few decades, the institutional logics of the capitalist market and the bureaucratic state have been pushed into association at an increasing rate through processes we have come to know as ‘globalization’ and ‘financialization’. The power of financial markets threatens governments around the world, from the communist to the most conservative. In response, governments have sought ways of realizing their interests in a rapidly changing economic environment. Nothing illustrates this phenomenon more than the rise of sovereign wealth funds (SWFs); governments have been using these special-purpose vehicles to invest assets in private financial markets at an increasing rate, independent of their variety of capitalism. While SWFs are an implicit acceptance by the state of the power of finance, they are, however, also an attempt by the state to leverage finance and filter the transformative forces of global capitalism. Drawing on institutional theory and economic geography, I conceptualize the impetus behind the existence of SWFs, and conclude that SWFs exist to preserve local autonomy and state sovereignty by harnessing the power of finance.