Deborah Swenson: Due to the recent emergence and rising size of sovereign wealth funds (SWFs), it is increasingly important that policymakers learn more about the financial dimensions and economic implications of these new actors. Since the academic literature has only begun to scratch the surface on this topic, Xie et al. provide much needed attention to this topic.
The primary question in this paper is how should SWF managers allocate their assets, when their SWF is tasked with investing on behalf of multiple objectives? To answer this question the authors develop a new technical approach to provide guidelines that could be used by SWF managers. Then, to illustrate how their approach affects asset allocation decisions, the authors apply their model to the case of China. They also explore how their asset allocation recommendations are affected by the timeframe for the SWF goal structure (short-, medium-, and long-run) and how their...