A 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
stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s, bonds, real estate, precious metals, or in alternative investments such as
private equity fund A private equity fund (abbreviated as PE fund) is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity. ...
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...
s. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from
foreign-exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influenc ...
held by the
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
. 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 Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
(SDRs) and
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(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 The euro (symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . Th ...
pound Pound or Pounds may refer to: Units * Pound (currency), a unit of currency * Pound sterling, the official currency of the United Kingdom * Pound (mass), a unit of mass * Pound (force), a unit of force * Rail pound, in rail profile Symbols * P ...
, and yen). Such
investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institutio ...
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.


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 Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment bank ...
. These firms needed a cash infusion due to losses resulting from mismanagement and the
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. It was triggered by a large decline in US home prices after the col ...
. 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.

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.M. Nicolas J. Firzli and Joshua Franzel
‘Non-Federal Sovereign Wealth Funds in the United States and Canada’, Revue Analyse Financière, Q3 2014
/ref> The U.S. state of
Texas Texas (, ; Spanish: ''Texas'', ''Tejas'') is a state in the South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2020, it is the second-largest U.S. state by bo ...
was thus the first to establish such a scheme, to fund public education. The
Permanent School Fund The Texas Permanent School Fund is a sovereign wealth fund which serves to provide revenues for funding of public primary and secondary education in the US state of Texas. Its assets include many publicly owned lands within Texas and various othe ...
(PSF) was created in 1854 to benefit primary and secondary schools, with the
Permanent University Fund The Permanent University Fund (PUF) is a sovereign wealth fund created by the State of Texas to fund public higher education within the state. A portion of the returns from the PUF are annually directed towards the Available University Fund (AU ...
(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 The Kuwait Investment Authority (KIA) is Kuwait's sovereign wealth fund, managing the state’s reserve and the state’s future generation fund (FGF). Founded in 1953, the KIA is the world's oldest sovereign wealth fund. As of April 2022, i ...
, 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 The Revenue Equalization Reserve Fund (RERF) is the sovereign wealth fund of the Pacific island republic of Kiribati. The RERF was created in 1956 to act as a store of wealth for the country's earnings from phosphate mining, which at one time ac ...
of Kiribati. Created in 1956, when the British administration of the Gilbert Islands in Micronesia put a levy on the export of
phosphates In chemistry, a phosphate is an anion, salt, functional group or ester derived from a phosphoric acid. It most commonly means orthophosphate, a derivative of orthophosphoric acid . The phosphate or orthophosphate ion is derived from phospho ...
used in fertilizer, the fund has since then grown to $520 million.

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 Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity, the ability to meet cash obligations when due * Li ...
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 The resource curse, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth, less democracy, or worse ...
, 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 Shah (; fa, شاه, , ) is a royal title that was historically used by the leading figures of Iranian monarchies.Yarshater, EhsaPersia or Iran, Persian or Farsi, ''Iranian Studies'', vol. XXII no. 1 (1989) It was also used by a variety of ...
-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 chest A war chest is a metaphor for any collection of tools or money intended to be used in a challenging or dangerous situation. Historically, it referred to an actual chest located in the homes or barracks of soldiers or military leadership, in whi ...
s for uncertain times. For example, the Kuwait Investment Authority during the
Gulf War The Gulf War was a 1990–1991 armed campaign waged by a 35-country military coalition in response to the Iraqi invasion of Kuwait. Spearheaded by the United States, the coalition's efforts against Iraq were carried out in two key phases ...
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 Temasek Holdings (Private) Limited, or simply Temasek, is a Singaporean state holding company owned by the Government of Singapore. Incorporated on 25 June 1974, Temasek owns and manages a total of US$496.59 billion (S$671 billion) in assets ...
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 Corporation (; ), commonly known as Xiaomi and registered as Xiaomi Inc., is a Chinese designer and manufacturer of consumer electronics and related software, home appliances, and household items. Behind Samsung, it is the second largest ...
and renewable energy companies like Bloom Energy. According to a 2014 study, SWFs are not created for reasons related to reserve accumulation and commodity-export specialization. Rather, the diffusion of SWF can best understood as a fad whereby certain governments consider it fashionable to create SWFs and are influenced by what their peers are doing.

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 countries, like the United States, which passed the Foreign Investment and National Security Act of 2007, 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 Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pre ...
has argued that the U.S. could potentially lose control of assets to wealthier foreign funds whose emergence "shake hecapitalist logic". These concerns have led the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
(EU) to reconsider whether to allow its members to use "
golden share In business and finance, a golden share is a nominal share which is able to outvote all other shares in certain specified circumstances, often held by a government organization, in a government company undergoing the process of privatization and tr ...
s" to block certain foreign acquisitions. 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 The Committee on Foreign Investment in the United States (CFIUS, commonly pronounced "Cifius" ) is an inter-agency committee of the United States government that reviews the national security implications of foreign investments in U.S. companie ...
(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". 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)

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 The Canada Pension Plan Investment Board (CPPIB; french: Office d'investissement du régime de pensions du Canada), operating as CPP Investments (french: Investissements RPC), is a Canadian Crown corporation established by way of the 1997 ''Can ...
. * On 20 August 2008, Germany approved a law that requires parliamentary approval for foreign investments that endanger national interests. Specifically, 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 spending. In fact, the Qatar wealth fund plans to spend $35 billion in the US in the next five years.

Santiago Principles

A number of transparency indices sprang up before the Santiago Principles, some more stringent than others. To address these concerns, some of the world's main SWFs came together in a summit in
Santiago Santiago (, ; ), also known as Santiago de Chile, is the capital and largest city of Chile as well as one of the largest cities in the Americas. It is the center of Chile's most densely populated region, the Santiago Metropolitan Region, whose ...
, 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 standard international standard is a technical standard developed by one or more international standards organizations. International standards are available for consideration and use worldwide. The most prominent such organization is the International Org ...
s 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 set up to maintain the new standards going forward and represent them in international policy debates. As of 2016, 30 funds have formally signed up to the Principles, representing collectively 80% of the assets managed by sovereign funds globally or US$5.5 trillion.

Size of SWFs

Assets under management of SWFs amounted to $7.94 trillion as at 24 December 2020. Countries with SWFs funded by oil and gas exports, totaled $5.4 trillion as of 2020. Non-commodity SWFs are typically funded by transfer of assets from official foreign exchange reserves, and in some cases from Government budget surpluses and privatization revenues. Middle Eastern and Asian countries account for 77% of all SWFs.

Largest sovereign wealth funds

See also

* Boutique investment bank *
Fund of funds A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A f ...
* Global financial system * Government Pension Fund of Norway *
Investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institutio ...
* List of exchange-traded funds * List of hedge funds * List of investment banks * List of private-equity firms * National wealth


Further reading

* Sovereign Wealth Fund Institute – What is a SWF
What is a Sovereign Wealth Fund? - SWFI
* Natural Resource Governance Institute & Columbia Center for Sustainable Investment "Managing the Public Trust: How to make natural resource funds work for citizens", 2014

* Castelli Massimiliano and Fabio Scacciavillani "The New Economics of Sovereign Wealth Funds", John Wiley & Sons, 2012 * Saleem H. Ali and Gary Flomenhoft
"Innovating Sovereign Wealth Funds"
. ''Policy Innovations'', 17 February 2011. * M. Nicolas J. Firzli and Vincent Bazi, World Pensions & Investments Forum, World Pensions Council (WPC) Asset Owners Report: “Infrastructure Investments in an Age of Austerity: The Pension and Sovereign Funds Perspective”, USAK/JTW 30 July 2011 and ''Revue Analyse Financière'', Q4 2011 * M. Nicolas J. Firzli and Joshua Franzel
"Non-Federal Sovereign Wealth Funds in the United States and Canada"
Revue Analyse Financière, Q3 2014 * Xu Yi-chong and Gawdat Bahgat, eds. ''The Political Economy of Sovereign Wealth Funds'' (Palgrave Macmillan; 2011) 272 pages; case studies of SWFs in China, Kuwait, Russia, the United Arab Emirates, and other countries. * Lixia, Loh. "Sovereign Wealth Funds: States Buying the World" (Global Professional Publishing: 2010).

External links

SWF Institute
Organization dedicated to Studying Sovereign Wealth Funds
International Forum of Sovereign Wealth Funds
IFSWF is a voluntary group of SWFs – Set up by IMF *
Sovereign Wealth Fund Rank
SWF Rankings
The impact of sovereign wealth funds on global financial markets
– European Central Bank, Occasional Paper No 91. July 2008.
Linaburg-Maduell Transparency Index
– Point system on grading sovereign wealth fund transparency
One Planet Sovereign Wealth Funds
One Planet SWF Page {{DEFAULTSORT:Sovereign Wealth Fund Foreign direct investment Investment funds Public finance International finance