Furthermore, states are calling more and more on their funds to bridge gaps in their housekeeping or to finance economic stimulus packages. This again might make ill-timed divestments necessary. These elements suggest that beyond the elements described above SWFs would also benefit from implementing dynamic risk-controlled allocation strategies that are designed to help long-term investors meet a number of short-term goals and constraints. These insights are becoming increasingly used by pension funds, where a shift from static to dynamic LDI strategies is taking place (Martellini and Milhau 2008), and they are likely to impact SWF allocation policies in the years ahead.
Finally, the approach that we have advocated in our research needs to be extended towards the inclusion of other sovereign assets as well as sovereign liabilities. In particular, the size of local and foreign-currency-denominated debt, as well as contingent liabilities towards pension systems or industries, relative to foreign reserves and sovereign assets will, for example, determine sovereign leverage and is expected to have a material impact on optimal sovereign asset management.