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SIL - Sovereign Investment Lab



Unit Director: Bernardo Bortolotti

After two decades where privatization and rolling back the State from economic activity has been the dominant global trend, we are now witnessing a shift in economic policies. Measures adopted worldwide to face the current financial crisis imply a massive intervention of the State into the financial sector. Taxpayers' money has been used and will continue to be used to rescue financial institutions. The credit crunch and the drop in demand are affecting the real estate sector - already in the middle of a substantial slowdown - and public funds have already been used to mitigate the adverse effects of the crisis, in particular to protect the level of employment.

Meanwhile, Sovereign Wealth Funds (SWFs), primarily from developing economies, have emerged as key actors in the global financial landscape. With (disclosed) SWF assets worth over $2.5 trillion, and $6 trillion of FX reserves rapidly accumulating thanks to large trade surpluses, SWFs have played and will play even more in the future the role of liquidity providers to the distressed global economic system, defining a new geography of financial capitalism with an enhanced power of emerging countries in the global and political arena.

The new scenario seriously questions the efficiency and sustainability of the market system. Economic research has been (partly) taken off guard by this abrupt shift in policies. This is the right timing for starting an innovative research project supporting a very broad reflection on the new role of the State in the economic activity. Although it is still unclear whether we face a temporary expansion of the State or rather a structural change, the revamped role of the State will probably take different forms and will be along several dimensions. In this perspective, particularly interesting topics are the role of sovereign funds and other vehicles as long term investors (and their objective function); the hybrid structure of governance of firms heavily financed by the State; the regulatory challenges posed by firms are under public control.

The project aims at creating a stable group of researchers working on sovereign investment and related issues from a plurality of perspectives: economic, financial, regulatory, political and diplomatic. Research output should be rigorous, but also accessible for a variety of stakeholders also outside academia: institutional investors, policymakers, diplomats, regulators, and the media.

Before landing at the Sovereign Investment Lab, the same research team worked on the topic for the Monitor Group, the global consulting firm, and for Fondazione Eni Enrico Mattei, a not-for-profit research institution, developing an enviable global reputation. The Lab will draw on the legacy of this work to further develop the intellectual agenda and apply it to real life business situations.