Focus on Nation’s Wealth Funds Could Generate More Income

Researchers from the United Arab Emirates University are focusing their efforts on studying the UAE’s sovereign wealth funds.

The country’s revenue of oil and gas is channelled in these funds and represents an important part of the nation’s wealth, which is invested in different asset classes.
According to Dr Jocelyn Grira, Associate Professor of Finance, the funds are invested domestically in the UAE and internationally in different sectors, including banking, real estate, and energy, among others.
“It is a way to diversify the UAE economy because we take the oil and gas revenue and invest it in many other sectors,” he explained. “We are trying to investigate whether we receive additional income if we increase the transparency of these funds.”

In comparison to countries such as China and Russia, the UAE’s funds are relatively transparent. Dr Grira says, however, that there is room for improvement, when compared to nations such as Norway. “The UAE is exerting many efforts in that sense,” he added. “We want to see what the revenues of their investments could increase if they enhance their transparency by a given percentage.”

Launched in 2014, several research papers were published out of the project in leading scientific journals, related to sovereign wealth funds in foreign countries. Over the last 5 years, Dr Grira received financial support for around 1.5 million dirhams from UAE University to carry on his research projects through the different research programs and centres: the UAEU Program for Advanced Research, the UAEU Center for Public Policy and Leadership, the UAEU Start-up Program, and the Summer Research Program, among others.

As an example, Dr Grira’s work shows that the cost of capital of firms where Sovereign Wealth Funds invest decreased, meaning that the overall investment process was beneficial to companies.

Related work was also presented in international conferences and won several “Best Paper” awards. “We have several projects running related to sovereign wealth funds – some are complete, some are under review and some are running with the UAE University students, mostly undergraduates,” Dr Grira noted. “The idea is to help them be more familiar with scientific research, especially in the summer, because the university has a program for undergraduate research in summer with students, so we have some financial support.”

Four students are currently working on the project, of which the “transparency” phase was launched a year ago. Dr Grira expects the research to complete in April 2020.

It is worth mentioning that research projects on the topic are done in collaboration with world-class researchers affiliated with top universities from the US, Canada, the UK, France, and the UAE.

“During the summer, students are involved in working on the data once it is purchased, to make it usable,” he added. “It is their first task, while the second one relates to literature review – they read a lot and summarize what has been done on that topic for them to understand what these sovereign wealth funds are and what we mean by transparency.”

The theoretical groundwork and financial analysis are considered the most vital steps in research due to the time they consume. “It requires a lot of reading, analysis and treatment,” Dr Grira explained. “In the Fall, we will meet with the students and try to wrap up, summarize and prepare for the next steps of the project.”

He spoke of the initiative’s importance for the UAE, as it has the potential of generating additional funds for the government by enhancing transparency levels. “In the end, you will increase the performance of these investments,” he concluded. “It will give positive insight to policy-makers to work on transparency in order to increase the revenues and it is very practical – they simply have to work on policies, laws, regulations and rules to improve their disclosure, provide more detailed information to investors and market players, and this could have a positive impact on the financial performance of these funds. So, economically, it is very interesting for the UAE”.