Brexit Vote Highlights Political Risks for SWFs

July 21, 2016 by Sven Behrendt

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Sven Behrendt, The U.K.’ s vote to leave the European Union, known as "Brexit," has placed political risk squarely on the agenda of sovereign wealth funds (SWFs) and other investors. The industry may be moving into a period in which political factors become as important as economic ones in pricing assets. Sovereign and government funds need to look very carefully at this transition. The outcome of the referendum implies some immediate consequences for the prices of assets that have shaped the industry over the past decades; it also signals a broader trend that may transform the interests that SWFs pursue and the strategies they employ. SWFs have generally shrugged off short-term market responses to political events, stressing that they were investing for the long term and therefore could wait until markets recovered from such tail risks. But precisely because SWFs are long-term investors, they should place such events into context, and…

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