Sovereign wealth fund

sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank. By historic convention, the United States’ Social Security Trust Fund, with US$2.8 trillion of assets in 2014, and similar vehicles like Japan Post Bank’s JP¥200 trillion of holdings, are not considered sovereign wealth funds.

Some sovereign wealth funds may be held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system; this type of fund is usually of major economic and fiscal importance. Other sovereign wealth funds are simply the state savings that are invested by various entities for the purposes of investment return, and that may not have a significant role in fiscal management.

The accumulated funds may have their origin in, or may represent, foreign currency deposits, gold, special drawing rights (SDRs) and International Monetary Fund (IMF) reserve positions held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. These are assets of the sovereign nations that are typically held in domestic and different reserve currencies (such as the dollar, euro, pound, and yen). Such investment management entities may be set up as official investment companies, state pension funds, or sovereign funds, among others.

There have been attempts to distinguish funds held by sovereign entities from foreign-exchange reserves held by central banks. Sovereign wealth funds can be characterized as maximizing long-term return, with foreign exchange reserves serving short-term “currency stabilization”, and liquidity management. Many central banks in recent years possess reserves massively in excess of needs for liquidity or foreign exchange management. Moreover, it is widely believed most have diversified hugely into assets other than short-term, highly liquid monetary ones, though almost no data is publicly available to back up this assertion. Some central banks have even begun buying equities, or derivatives of differing ilk (even if fairly safe ones, like overnight interest rate swaps).[citation needed]


The term “sovereign wealth fund” was first used in 2005 by Andrew Rozanov in an article entitled, “Who holds the wealth of nations?” in the Central Banking Journal.[1] The previous edition of the journal described the shift from traditional reserve management to sovereign wealth management; subsequently the term gained widespread use as the spending power of global officialdom has rocketed upward.

Some of them have grabbed attention making bad investments in several Wall Street financial firms such as Citigroup, Morgan Stanley, and Merrill Lynch. These firms needed a cash infusion due to losses resulting from mismanagement and the subprime mortgage crisis.

SWFs invest in a variety of asset classes such as stocks, bonds, real estate, private equity and hedge funds. Many sovereign funds are directly investing in institutional real estate. According to the Sovereign Wealth Fund Institute’s transaction database around US$9.26 billion in direct sovereign wealth fund transactions were recorded in institutional real estate for the last half of 2012.[2] In the first half of 2014, global sovereign wealth fund direct deals amounted to $50.02 billion according to the SWFI.[3]

Early SWFs

Sovereign wealth funds have existed for more than a century, but since 2000, the number of sovereign wealth funds has increased dramatically. The first SWFs were non-federal U.S. state funds established in the mid-19th century to fund specific public services.[4] The U.S. state of Texas was thus the first to establish such a scheme, to fund public education. The Permanent School Fund (PSF) was created in 1854 to benefit primary and secondary schools, with the Permanent University Fund (PUF) following in 1876 to benefit universities. The PUF was endowed with public lands, the ownership of which the state retained by terms of the 1845 annexation treaty between the Republic of Texas and the United States. While the PSF was first funded by an appropriation from the state legislature, it also received public lands at the same time that the PUF was created. The first SWF established for a sovereign state is the Kuwait Investment Authority, a commodity SWF created in 1953 from oil revenues before Kuwait gained independence from the United Kingdom. According to many estimates, Kuwait’s fund is now worth approximately US$600 billion.

Another early registered SWFs is the Revenue Equalization Reserve Fund of Kiribati. Created in 1956, when the British administration of the Gilbert Islands in Micronesia put a levy on the export of phosphates used in fertilizer, the fund has since then grown to $520 million.[5]

Nature and purpose

SWFs are typically created when governments have budgetary surpluses and have little or no international debt. It is not always possible or desirable to hold this excess liquidity as money or to channel it into immediate consumption. This is especially the case when a nation depends on raw material exports like oil, copper or diamonds. In such countries, the main reason for creating a SWF is because of the properties of resource revenue: high volatility of resource prices, unpredictability of extraction, and exhaustibility of resources.

There are two types of funds: saving funds and stabilization funds. Stabilization SWFs are created to reduce the volatility of government revenues, to counter the boom-bust cycles’ adverse effect on government spending and the national economy. Savings SWFs build up savings for future generations. One such fund is the Government Pension Fund of Norway. It is believed that SWFs in resource-rich countries can help avoid resource curse, but the literature on this question is controversial. Governments may be able to spend the money immediately, but risk causing the economy to overheat, e.g., in Hugo Chávez’s Venezuela or Shah-era Iran. In such circumstances, saving the money to spend during a period of low inflation is often desirable.

Other reasons for creating SWFs may be economic, or strategic, such as war chests for uncertain times. For example, the Kuwait Investment Authority during the Gulf War managed excess reserves above the level needed for currency reserves (although many central banks do that now). The Government of Singapore Investment Corporation and Temasek Holdings are partially the expression of a desire to bolster Singapore’s standing as an international financial centre. The Korea Investment Corporation has since been similarly managed. Sovereign wealth funds invest in all types of companies and assets, including startups like Xiaomi and renewable energy companies like Bloom Energy.[6]

Concerns about SWFs

The growth of sovereign wealth funds is attracting close attention because:

  • As this asset pool continues to expand in size and importance, so does its potential impact on various asset markets.
  • Some[which?]countries worry that foreign investment by SWFs raises national security concerns because the purpose of the investment might be to secure control of strategically important industries for political rather than financial gain.
  • Former U.S. Secretary of the Treasury Lawrence Summers has argued that the U.S. could potentially lose control of assets to wealthier foreign funds whose emergence “shake[s] [the] capitalist logic”[4]These concerns have led the European Union (EU) to reconsider whether to allow its members to use “golden shares” to block certain foreign acquisitions.[7] This strategy has largely been excluded as a viable option by the EU, for fear it would give rise to a resurgence in international protectionism. In the United States, these concerns are addressed by the Exon–Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, § 5021, 102 Stat. 1107, 1426 (codified as amended at 50 U.S.C. app. § 2170 (2000)), as administered by the Committee on Foreign Investment in the United States (CFIUS).
  • Their inadequate transparency is a concern for investors and regulators: for example, size and source of funds, investment goals, internal checks and balances, disclosure of relationships, and holdings in private equity funds.
  • SWFs are not nearly as homogeneous as central banks or public pension funds.
  • A lack of transparency and hence an increase in risk to the financial system, perhaps becoming the “new hedge funds”.[8]

The governments of SWF’s commit to follow certain rules:

  • Accumulation rule (what portion of revenue can be spent/saved)
  • Withdraw rule (when the Government can withdraw from the fund)
  • Investment (where revenue can be invested in foreign or domestic assets)[9]

Governmental interest in 2008

  • On 5 March 2008, a joint sub-committee of the U.S. House Financial Services Committee held a hearing to discuss the role of “Foreign Government Investment in the U.S. Economy and Financial Sector”. The hearing was attended by representatives of the U.S. Department of Treasury, the U.S. Securities and Exchange Commission, the Federal Reserve Board, Norway’s Ministry of Finance, Singapore’s Temasek Holdings, and the Canada Pension Plan Investment Board.
  • On 20 August 2008, Germany approved a law that requires parliamentary approval for foreign investments that endanger national interests. To be specific, it affects acquisitions of more than 25% of a German company’s voting shares by non-European investors—but the economics minister Michael Glos has pledged that investment reviews would be “extremely rare.” The legislation is loosely modeled on a similar one by the U.S. Committee on Foreign Investments. Sovereign wealth funds are also increasing their spend. In fact, the Qatar wealth fund plans to spend $35 billion in the US in the next 5 years.[10][11]

Santiago Principles

There were a number of transparency indices springing out before the Santiago Principles, some more stringent than others.[citation needed] To address these concerns some of the world’s main SWFs come together in a summit in Chile on 2–3 September 2008, under the leadership of the IMF, they formed a temporary International Working Group of Sovereign Wealth Funds. This working group then drafted the 24 Santiago Principles, to set out a common global set of international standards regarding transparency, independence, and accountability in the way that SWFs operate.[12][13] These were published after being presented to the IMF International Monetary Financial Committee on 11 October 2008.[13] They also considered a standing committee to represent them and so a new organisation, the International Forum of Sovereign Wealth Funds (IFSWF) was then set up to maintain the new standards going forward and represent them in international policy debates.[14]

As of 2016, 30[15] funds have formally signed up to the Principles representing collectively 80% of assets managed by sovereign funds globally or US$5.5 trillion.[16]

New SWFs established in developed jurisdictions since 2010

New SWFs were established in various developed jurisdictions after 2010 following the rise in energy and commodity prices, e.g., the North Dakota Legacy Fund (2011) and the Western Australian Future Fund (2012). The Israeli Citizens’ Fund should start operating in 2020 after several years of preparatory work involving veteran American as well as local asset management experts.[17]

Size of SWFs

Assets under management of SWFs increased for the tenth year running in 2018 to a record $8.109 trillion.[18] There was an additional $7.2 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations’ funds and $8.1 trillion in other official foreign exchange reserves. Taken together, governments of SWFs, largely those in emerging economies, have access to a pool of funds totalling $20 trillion. Some of these funds could in future be channelled towards funding development of infrastructure for which there is global demand.

Countries with SWFs funded by oil and gas exports, primarily oil and gas exports, totalled $4.29 trillion as of the end of 2014.[19] Non-oil and gas SWFs totalled $2.82 trillion. Non-commodity SWFs are typically funded by transfer of assets from official foreign exchange reserves, and in some cases from government budget surpluses and privatisation revenue. Asian countries account for the bulk of such funds.

An important point to note is the SWF-to-Foreign Reserve Exchange Ratio, which shows the proportion a government has invested in investments relative to currency reserves. According to the SWF Institute, most oil-producing nations in the Persian Gulf have a higher SWF-to-Foreign Exchange Ratio—for example, the Qatar Investment Authority (5.89 times) compared to the China Investment Corporation (0.12 times)—reflecting a more aggressive stance to seek higher returns.[citation needed]

Largest sovereign wealth funds

The United Arab Emirates, Kuwait, Norway, and Russia all have funds devoted to investing in oil and natural gas exports. Other countries with investment funds are as varied as China, Singapore, Chile, and the Pacific island nation of Kiribati.[20]

Country Abbreviation Fund Assets,
billions USD
Inception Origin
 Norway GPF Government Pension Fund – Global 1007 1990 Oil
 China CIC China Investment Corporation 941.4 2007 Non-commodity
 United Arab Emirates
Abu Dhabi
ADIA Abu Dhabi Investment Authority 828 1976 Oil
 Kuwait KIA Kuwait Investment Authority 642 1953 Oil, Non-commodity
 Saudi Arabia SAMA SAMA Foreign Holdings 514 1952 Oil
 Hong Kong HKMA Hong Kong Monetary Authority Investment Portfolio 456.6 1993 Non-commodity
 China SAFE SAFE Investment Company 441[a] 1997 Non-commodity
 Singapore GIC GIC Private Limited 359 1981 Non-commodity
 Qatar QIA Qatar Investment Authority 320 2003 Oil
CDPQ Caisse de dépôt et placement du Québec 308 1965 Non-commodity
 China NSSF National Social Security Fund 295 2000 Non-commodity
 Canada CPPIB Canada Pension Plan Investment Board 254.3 1997 Non-commodity
 United Arab Emirates
ICD Investment Corporation of Dubai 209.5 2006 Oil
 Singapore TH Temasek Holdings 308 1974 Non-commodity
 Saudi Arabia PIF/Sanabil Public Investment Fund/Sanabil Investments 183 2008 Oil
 Malaysia KN Khazanah Nasional 160 1993 Non-commodity
 South Africa PIC Public Investment Corporation 160 1911 Non-Commodity[22]
 United Arab Emirates
Abu Dhabi
MDC Mubadala Investment Company 125 2002 Oil
 South Korea KIC Korea Investment Corporation 122.3 2005 Non-commodity
 United Arab Emirates
Abu Dhabi
ADIC Abu Dhabi Investment Council 110 2007 Oil
 Australia AFF Future Fund[23] 102.3 2006 Non-commodity
 Iran NDF National Development Fund 91 1999 Oil
 Russia RNWF Russian National Wealth Fund 124.1[24] 2008 Oil
 France BPIfrance Bpifrance 68.35 ( €59.736 billion) 2012 Non-commodity
 Libya LIA Libyan Investment Authority 66 2006 Oil
 Kazakhstan KNF Kazakhstan National Fund 64.7 2000 Oil
 Kazakhstan S-K JSC Samruk-Kazyna JSC 60.9 2008 Non-commodity
 United States of America
APF Alaska Permanent Fund[25] 64.9 1976 Oil
 Brunei BIA Brunei Investment Agency 40 1983 Oil
 United States of America
PSF Permanent School Fund 37.7[26][27] 1854 Public Lands
 United Arab Emirates
EIA Emirates Investment Authority 34 2007 Oil
 Azerbaijan SOFAZ State Oil Fund of the Republic of Azerbaijan[28] 33.1 1999 Oil
 Norway GPF Government Pension Fund – Norway 30.6 1967 Non-commodity
 Germany NWDF Nuclear Waste Disposal Fund 27.8 (€24.1bn) 2017 nuclear power plant operators
 France FSI Fonds stratégique d’investissement 25.19 2008 Non-commodity
 New Zealand NZSF New Zealand Superannuation Fund 26.6 2003 Non-commodity
 Turkey TWF Turkey Wealth Fund 24 2016 Natural resources & Non-commodity
 United States of America
PUF Permanent University Fund 21.0[29] 1876 Public Lands
 United States of America
New Mexico
NMSIC New Mexico State Investment Council 20.2 1958 Non-commodity
 Oman SGRF State General Reserve Fund 18 1980 Oil & Gas
 Timor Leste TLPF Timor-Leste Petroleum Fund 16.6 2005 Oil & Gas
 Russia RRF Russian Reserve Fund 16.2 2008 Oil
 Chile SESF Social and Economic Stabilization Fund 14.7 2007 Copper
AHSTF Alberta Heritage Savings Trust Fund[30] 13.4 1976 Oil
 Russia RDIF Russian Direct Investment Fund 13 2011 Non-commodity
 Bahrain MHC Mumtalakat Holding Company 10.6 2006 Oil
 Chile PRF Pension Reserve Fund 9.4 2006 Copper
 Ireland NPRF National Pensions Reserve Fund 8.5 2001 Non-commodity
 Peru FSF Fiscal Stabilization Fund 7.9 1999 Non-commodity
 Algeria RRF Revenue Regulation Fund 7.6 2000 Oil
 United States of America
PWMTF Permanent Wyoming Mineral Trust Fund 7.3 1974 Minerals
 Brazil SFB Sovereign Fund of Brazil 7.3 2008 Non-commodity
 Mexico ORSFM Oil Revenues Stabilization Fund of Mexico 6 2000 Oil
 Oman OIF Oman Investment Fund 6 2006 Oil
 Botswana PF Pula Fund 5.7 1996 Diamonds & Minerals
 Trinidad & Tobago HSF Heritage and Stabilization Fund 6.2[31] 2007 Oil
 China CADF China-Africa Development Fund 5 2007 Non-commodity
 Angola FSDEA Fundo Soberano de Angola 4.6 2012 Oil
 United States of America
North Dakota
NDLF North Dakota Legacy Fund 4.3 2011 Oil & Gas
 India NIIF National Investment and Infrastructure Fund 4.0 2015 Natural resources & Non-commodity
 Colombia CSSF Colombia Savings and Stabilization Fund 3.5 2011 Oil & Mining
 United States of America
ATF Alabama Trust Fund 2.7 1985 Oil & Gas
 Kazakhstan NIC National Investment Corporation 2 2012 Oil
 United States of America
SIFTO Utah-SITFO 2 1896 Land & Mineral Royalties
 United States of America
IEFIB Idaho Endowment Fund Investment Board 2 1969 Land & Mineral Royalties
(Bayelsa State)
BDIC Bayelsa Development and Investment Corporation 1.5 2012 Non-commodity
 Nigeria NSIA Nigeria Sovereign Investment Authority 1.4 2011 Oil
 United States of America
LEQTF Louisiana Education Quality Trust Fund 1.3 1986 Oil & Gas
 Panama FAP Fondo de Ahorro de Panama 1.2 2012 Non-commodity
 United Arab Emirates
Ra’s al Khaymah
RIA RAKIA 1.2 2005 Credits obtained via RAK Government
 Bolivia FINPRO Fund for Productive Industrial Revolution 1.2 2012 Non-commodity
 United States of America
CSF Oregon Common School Fund 1.2[32] 1859 Public Lands
 Senegal SSIF Senegal Strategic Investment Fund – FONSIS 1 2012 Non-commodity
 Iraq DFI Development Fund for Iraq 0.9 2003 Oil
 Palestine PIF Palestine Investment Fund 0.8 2003 Non-commodity
 Venezuela FEM FEM – Macroeconomic Stabilization Fund 0.8 1998 Oil
 Kiribati RERF Revenue Equalization Reserve Fund 0.6 1956 Phosphates
 Vietnam SCIC State Capital Investment Corporation 0.5 2006 Non-commodity
 Ghana GPF Ghana Petroleum Funds 0.45 2011 Oil
 Gabon GSWF Sovereign Fund of the Gabonese Republic 0.4 1998 Oil
 Algeria FNI Fonds National d’Investissements 0.35 2015 Non-commodity
 Mauritania NFHR National Fund for Hydrocarbon Reserves 0.3 2006 Oil & Gas
Western Australia
WAFF Western Australian Future Fund 0.3 2012 Minerals
 Mongolia FSF Fiscal Stability Fund 0.3 2011 Mining
 Equatorial Guinea FFG Fund for Future Generations 0.08 2002 Oil
 Papua New Guinea PNGSWF Papua New Guinea Sovereign Wealth Fund X 2011 Gas
 Turkmenistan TSF Turkmenistan Stabilization Fund X 2008 Oil & Gas
 United States of America
West Virginia
WVFF West Virginia Future Fund X 2014 Oil & Gas
 Mexico FMP Fondo Mexicano del Petroleo para la Estabilizacion y el Desarrollo X 2014 Oil & Gas
 United Arab Emirates
SAM Sharjah Asset Management X 2008 Non-commodity
 Rwanda AGDF Agaciro Development Fund[33] .046[34] 2012 Non-commodity
  1. ^This number is a best-guess estimation by the Sovereign Wealth Funds Institute.


  1. ^“Who holds the wealth of nations?” (PDF). Central Banking Journal (May 2005, Volume 15, Number 4). Archived from the original (PDF) on 29 May 2008. Retrieved 2 September2008.
  2. ^“Sovereign Funds Embrace Direct Real Asset Deals”. SWF Institute. 1 August 2013.
  3. ^Dunkley, Dan (7 August 2014). “Sovereign-Wealth Funds Pump Near Record Amount of Cash in Deals”. Wall Street Journal. Retrieved 8 August 2014.
  4. ^ Jump up to:ab Nicolas J. Firzli and Joshua Franzel: ‘Non-Federal Sovereign Wealth Funds in the United States and Canada’, Revue Analyse Financière, Q3 2014
  5. ^“The world’s most expensive club”. The Economist. 24 May 2007.
  6. ^“Sovereign-Wealth Funds Went Full Steam Ahead Direct Investing in 2014”. Wall Street Journal. 6 January 2015.
  7. ^“Sovereign Wealth Funds: The New Hedge Fund?”. The New York Times. 1 August 2007.
  8. ^Duncan, Gary (27 June 2007). “IMF concern over ‘black box’ funds of reserve rich nations”. London: Times Online.
  9. ^“Rebuilding America: The Role of Foreign Capital and Global Public Investors | Brookings Institution”. 11 March 2011. Retrieved 5 October 2016.
  10. ^Global, IndraStra. “How Are Sovereign Wealth Fund Decisions Made?”. IndraStra. ISSN 2381-3652.
  11. ^“Qatar to invest $35bn in U.S. over 5 years”. The WorldFolio.
  12. ^Sovereign Wealth Funds: Generally Accepted Principles and Practices (Santiago Principles), International Working Group of Sovereign Wealth Funds, October 2008
  13. ^ Jump up to:ab International Forum of Sovereign Wealth Funds. “Santiago Principles”. Retrieved 27 September 2016.
  14. ^International Forum of Sovereign Wealth Funds. “About us”. Retrieved 27 September2016.
  15. ^International Forum of Sovereign Wealth Funds. “Our Members”. Retrieved 27 September 2016.
  16. ^Hedge Fund Standards Board (4 April 2016). “International Forum of Sovereign Wealth Funds (IFSWF) and Hedge Fund Standards Board (HFSB) establish Mutual Observer relationship”. Retrieved 27 September 2016.
  17. ^“Israel natural gas wealth fund expected to begin around 2020”. Reuters. 4 April 2017.
  18. ^“Sovereign Wealth Fund Institute. Retrieved on 2018-10-23”. Retrieved 23 October 2018.
  19. ^“Fund Rankings | SWFI – Sovereign Wealth Fund Institute”. Retrieved 5 October 2016.
  20. ^“Sovereign Investment Funds”. Emerging Index. 17 January 2010.
  21. ^“Sovereign Wealth Funds Institute”. Retrieved 5 October 2016.
  22. ^“PIC | Public Investment Corporation”. Retrieved 6 April 2018.
  23. ^“Future Fund”. Future Fund. Retrieved 5 October 2016.
  24. ^“Russia’s National Welfare Fund Doubled in July to $124 Billion”. The Moscow Times. 5 August 2019.
  25. ^“Alaska Permanent Fund Corporation web site”. Retrieved 5 October 2016.
  26. ^“Texas Permanent School Fund”. Texas Education Agency Website. TEA. Retrieved 7 January 2012.
  27. ^“Permanent School Funds Hits $25B Level”. Texas Education Agency Website. TEA. Retrieved 7 January 2012.
  28. ^“ARDNF – Azərbaycan Respublikası Dövlət Neft Fondu – Home”. Retrieved 7 August 2018.
  29. ^“Permanent University Fund Semi-Annual Report” (PDF). University of Texas/Texas A&M Investment Management Company. 31 December 2017. Retrieved 4 May 2018.
  30. ^“Government of Alberta – Finance (AHSTF)”. 1 April 2015. Retrieved 5 October 2016.
  31. ^“Heritage And Stabilisation Fund Quarterly Investment Report April 2019 – June 2019”(PDF). Ministry of Finance, Government of the Republic of Trinidad and Tobago. 12 September 2019. Retrieved 22 November 2019.
  32. ^“About the Common School Fund”. Oregon Department of State Lands. 30 June 2013. Retrieved 1 March 2015.
  33. ^“Agaciro Development Fund”. Agaciro Development Fund. 24 November 2018. Retrieved 24 November 2018.
  34. ^Bizimungu, Julius (19 September 2018). “In 2013, the Fund was valued at Rwf20.5 billion before growing to Rwf41 billion last year”. The New Times. Retrieved 24 November 2018.

Ofer Abarbanel – Executive Profile

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