A sovereign wealth fund (SWF) or sovereign investment 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).
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. 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. In the first half of 2014, global sovereign wealth fund direct deals amounted to $50.02 billion according to the SWFI.
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. 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.
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.
The growth of sovereign wealth funds is attracting close attention because:
The governments of SWF's commit to follow certain rules:
There were a number of transparency indices springing out before the Santiago Principles, some more stringent than others. 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. These were published after being presented to the IMF International Monetary Financial Committee on 11 October 2008. 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.
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.
Assets under management of SWFs increased for the tenth year running in 2018 to a record $8.109 trillion. 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. 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.
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.
** This number is a best-guess estimation by the Sovereign Wealth Funds Institute.
The Abu Dhabi Investment Authority (ADIA) is a sovereign wealth fund owned by Emirate of Abu Dhabi (in United Arab Emirates) founded for the purpose of investing funds on behalf of the Government of the Emirate of Abu Dhabi. It manages the Emirate’s excess oil reserves, estimated to be as much as $875 billion. Its portfolio grows at an annual rate of about 10% compounded. The fund is a member of the International Forum of Sovereign Wealth Funds and is therefore signed up to the Santiago Principles on best practice in managing sovereign wealth funds.ADIA has never published how much it has in assets but estimates have been between $800 billion to approximately $875 billion USD. The Sovereign Wealth Fund Institute puts the figure at US$792 billion.Banco de Portugal
The Banco de Portugal (English: Bank of Portugal) is the central bank of the Portuguese Republic.China Investment Corporation
China Investment Corporation (CIC) (Chinese: 中国投资有限责任公司; pinyin: zhōngguó tóuzī yǒuxiàn zérèn gōngsī) is a sovereign wealth fund responsible for managing part of the People's Republic of China's foreign exchange reserves. CIC was established in 2007 with approximately US$200 billion of assets under management. At the end of 2015, the CIC had over US$810 billion in assets under management.Export Development Bank of Iran
Export Development Bank of Iran (EDBI) (Persian: بانک توسعه صادرات ايران) is Iran's export-import bank. The bank was incorporated as a policy bank, owned by the Iranian government, and provides financial and other conventional banking services to Iranian exporters and importers.FlyArystan
FlyArystan is a low-cost airline based in Almaty, Kazakhstan. It is a wholly owned subsidiary of Air Astana, the country's leading airline. FlyArystan's foundation was approved by Air Astana's joint shareholders, Samruk-Kazyna Sovereign Wealth Fund and BAE Systems PLC, and was endorsed by Kazakhstan's President Nursultan Nazarbayev, on 2 November 2018.
FlyArystan's sales commenced on 29 March 2019 on its website. The airline flew its first flights on 1st May 2019 with services from its hub airport, Almaty International Airport.Peter Foster, President and CEO of Air Astana, was quoted at a press conference in Almaty on 6 November 2018 as saying that FlyArystan is “on the one hand a response to demand for lower airfares in a more competitive local market, on the other, a recognition of the huge opportunity for low cost air travel throughout Central Asia and the Caucasus”.Fundo Soberano de Angola
The Fundo Soberano de Angola (FSDEA) is the sovereign wealth fund of Angola. and member of the International Forum of Sovereign Wealth Funds and therefore has signed up to the Santiago Principles on best practice in managing sovereign wealth funds. The FSDEA is meant to play an important role in promoting Angola’s social and economic development and generating wealth for its people. The fund was rated by the SWFI in February 2015 with a ranking of 8 out of 10.GIC Private Limited
GIC Private Limited, formerly known as Government of Singapore Investment Corporation, is a sovereign wealth fund established by the Government of Singapore in 1981 to manage Singapore's foreign reserves. Its mission is to preserve and enhance the international purchasing power of the reserves, with the aim to achieve good long-term returns above global inflation over the investment time horizon of 20 years. With a network of 10 offices in key financial capitals around the world, GIC invests internationally in developed market equities, emerging market equities, nominal bonds and cash, inflation-linked bonds, private equity and real estate.The Sovereign Wealth Fund Institute (SWFI) had estimated the fund's assets at US$359 billion.In addition to GIC, the Government of Singapore owns another sovereign wealth fund, Temasek Holdings, which manages about SGD$275 billion of assets.Government Pension Fund of Norway
The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway.
The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.3% of global stocks and shares, making it the world’s largest sovereign wealth fund. In May 2018 it was worth about $195,000 per Norwegian citizen. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds.
The Government Pension Fund Norway is smaller and was established in 1967 as a type of national insurance fund. It is managed separately from the Oil Fund and is limited to domestic and Scandinavian investments and is therefore a key stock holder in many large Norwegian companies, predominantly via the Oslo Stock Exchange.Kuwait Investment Authority
The Kuwait Investment Authority (KIA) is Kuwait's sovereign wealth fund, managing body, specializing in local and foreign investment. It is the 5th largest sovereign wealth fund in the world with assets exceeding $592 billion. It is a member of the International Forum of Sovereign Wealth Funds and has signed up to the Santiago Principles on best practice in managing sovereign wealth funds.Lanxess
Lanxess Aktiengesellschaft is a specialty chemicals company based in Cologne, Germany that was founded in 2004 via the spin-off of the chemicals division and parts of the polymers business from Bayer AG.Shares in Lanxess AG were listed in Germany’s DAX from September 24, 2012 to September 21, 2015 and form part of MDAX, a midcap index. The company is listed in the Dow Jones Sustainability Index and FTSE4Good Index.
In 2016, the company began to focus on the market for additives for lubricants and fire retardants by acquiring Chemtura and placing its rubber business into a joint venture with Aramco.As of May 2007 the largest shareholders were Allianz, BlackRock, and Norway’s sovereign wealth fund, each of which held 6 percent or less of Lanxess.List of countries by sovereign wealth funds
A sovereign wealth fund (SWF) is a fund owned by a state (or a political subdivision of a federal state) composed of financial assets such as stocks, bonds, property or other financial instruments. Sovereign wealth funds are entities that manage the national savings for the purposes of investment. 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 position 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 which are typically held in domestic and different reserve currencies such as the dollar, euro and yen. The names attributed to the management entities may include central banks, official investment companies, state pension funds, sovereign oil funds, among others.
Some countries may have more than one SWF (see also the list of largest sovereign wealth funds). Also, while the United States does not have a federal sovereign wealth fund, several of its constituent states have their own SWFs, and one state, Texas, has two.
** The Oregon Common School Fund (CSF} is not in the Sovereign Wealth Fund Institute's list. However, it has been added here.Natural Gas Revenue Fund
The Natural Gas Revenue Fund (NGRF) is the proposed sovereign wealth fund of Tanzania expected to be launched in October 2014 or February 2015 after the enactment of a bill by the National Assembly. It will manage the revenue accrued from the sale of its natural gas. As of April 2014, Tanzania has a recoverable gas reserve of 43.1 tcf. The fund will be managed by the Bank of Tanzania. However, according to PFC Energy, 25 to 30 trillion cubic feet of recoverable natural gas resources have been discovered in Tanzania since 2010.Nigeria Sovereign Investment Authority
The Nigeria Sovereign Investment Authority is a Nigerian establishment which manages the Nigeria sovereign wealth fund, into which the surplus income produced from Nigeria's excess oil reserves is deposited. This sovereign wealth fund was founded for the purpose of managing and investing these funds on behalf of the government of Nigeria. The wealth fund commenced operations in October 2012 and was set up by the Nigeria Sovereign Investment Authority Act, which was signed in May 2011. It is intended to invest the savings gained on the difference between the budgeted and actual market prices for oil to earn returns that would benefit future generations of Nigerians. The fund was allocated an initial $1 billion USD in seed capital. However, an additional $0.5billion has been contributed to date by the current administration.Norges Bank
Norges Bank / Noregs Bank is the central bank of Norway. Apart from having traditional central bank responsibilities such as financial stability and price stability, it manages The Government Pension Fund of Norway, a stabilization fund that may be the world's largest sovereign wealth fund. The limited transparency of some SWFs makes it difficult to make accurate assessments of their assets under management.On 31 December 2010, the bank had 590 employees. All Executive Board appointments are made by the King of Norway, after a decision by the Council of State. The Chairman of the Executive Board, Øystein Olsen, who presides over the bank, is also the acting Central Bank Governor. Both the Governor and the Deputy Governor make speaking appearances across the country on a number of occasions each year.Pacific Century Place Marunouchi
Pacific Century Place Marunouchi (パシフィックセンチュリープレイス丸の内, Pashifikku Senchurī Pureisu Marunouchi) is a skyscraper in Marunouchi, Chiyoda, Tokyo.
The Four Seasons Hotel Tokyo at Marunouchi is within the building. The building also houses Aeroméxico's Japan offices.The building was developed following a tender of the underlying land by Japan Railway Settlement Corporation in 1997. Pacific Century Group acquired the land and led the development of the property. Nikken Sekkei was responsible for preliminary architectural design, while Takenaka Corporation and Kajima Corporation led the construction.Singaporean sovereign wealth fund GIC acquired a large portion of the building in 2014 (excluding the hotel and certain other components) for $1.7 billion from Secured Capital Investment Management, which acquired the space in 2009 for around $1.3 billion.Public Investment Fund of Saudi Arabia
The Public Investment Fund (PIF) is a sovereign wealth fund owned by Saudi Arabia. It is among the largest sovereign wealth funds in the world with total estimated assets of $320 billion. It was founded for the purpose of investing funds on behalf of the Government of Saudi Arabia. The PIF has a portfolio made up of approximately 200 investments, of which around 20 are listed on Tadawul, the Saudi Stock Exchange.Saudi Arabian Monetary Authority
The Saudi Arabian Monetary Authority (SAMA; Arabic: مؤسسة النقد العربي السعودي), established in 1952, is the central bank of the Kingdom of Saudi Arabia. Previously, it was known as Saudi Arabian Monetary Agency.Sovereign Wealth Fund Institute
The Sovereign Wealth Fund Institute or SWF Institute, or SWFI, is a global corporation analyzing public asset owners such as sovereign wealth funds and other long-term governmental investors. Initially, the Sovereign Wealth Fund Institute focused solely on sovereign wealth funds. It has branched out to cover all types of public institutional investors. The institute is a financial data vendor but provides information to the media as well. It was founded by Michael Maduell and Carl Linaburg in late 2007.SWFI sells data subscriptions to asset managers, banks, researchers, universities, governments, institutional investors, asset owners, corporations, law firms and other entities.State Oil Fund of Azerbaijan
The State Oil Fund of the Republic of Azerbaijan (SOFAZ) is Azerbaijan's sovereign wealth fund, whereby energy-related earnings are accumulated and efficiently managed for future generations.
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