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Assessing the effects of adding Timberland and Farmland into resource-based Sovereign Wealth Fund portfolios

Martinez-Oviedo, R; Medda, F; (2017) Assessing the effects of adding Timberland and Farmland into resource-based Sovereign Wealth Fund portfolios. Journal of Economics and Business , 91 pp. 24-40. 10.1016/j.jeconbus.2017.01.002. Green open access

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Abstract

Sovereign Wealth Funds (SWFs) have been prompted to reconsider their traditional asset allocations given the underperformance of equity markets post-2008 financial crisis and the collapse of commodity prices in recent years. Timberland and farmland investments are increasingly attracting the attention of these funds, seeking higher and more stable returns and means to hedge commodity risk. However, analytical analyses on the effect of these investments to SWFs are still limited. This paper studies the effects of including timber and farmland investments in the strategic asset allocation (SAA) of an oil-based SWF. We model the portfolio of investment of an SWF using Norway’s Government Pension Fund Global as a case study, and gathering empirical data for the period Q1 2007 - Q1 2016. We examine how allocations in timberland and farmland affect returns, the fund’s net growth, and the portfolio exposure to commodity risk. Our results indicate that timber and farmland bring positive effects when supplanting equity investments, improve the return-risk characteristic of the portfolio, and provide hedging again oil risk.

Type: Article
Title: Assessing the effects of adding Timberland and Farmland into resource-based Sovereign Wealth Fund portfolios
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jeconbus.2017.01.002
Publisher version: https://doi.org/10.1016/j.jeconbus.2017.01.002
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Sovereign wealth funds, timber, farmland, asset allocation, oil risk, portfolio optimization
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng
URI: https://discovery.ucl.ac.uk/id/eprint/1538984
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