Liquidity sovereigns Central banks Liquidity sovereigns manage assets to stimulate Central banks are ‘lenders of last resort’ - managers economies that are highly dependent on commodity of a large foreign reserves portfolio to bail out prices during a market shock. Due to the unpredictable — financial institutions of public importance. Due to and sudden nature of outflows, liquidity sovereigns the importance of maintaining reserves to sufficiently have extremely short time horizons and prioritise cover such requirements, preservation of capital portfolio liquidity above investment returns. Despite is of greatest importance. Central banks also have low yields of government bonds, liquidity sovereigns high levels of public accountability and disclosure, are unable to seek higher returns from alternative encouraging risk aversion through short time horizons asset classes due to the inherent liquidity risk. and highly liquid investments. While other sovereigns invest in home market assets, central bank reserve Development sovereigns managers hold the majority of their assets in foreign The asset and geographic allocation of development securities, increasing the importance of currency sovereigns is driven by the requirement to encourage exposure relative to other sovereigns. local economic growth (rather than investment Unlike sovereign investors, central banks have return). Development sovereigns take large (often objectives outside of reserves management, including controlling) stakes in companies of economic local market liquidity management and maintenance significance in order to grow their presence in of currency pegs. Since these external factors have the local market. While other sovereigns adjust influence over the foreign reserves, in this study we allocations to maximise their asset growth and yield, consider central banks separately from sovereign development sovereigns consider their success investors. However, as many government bonds h