What is a SWF?
About Sovereign Wealth Funds
What is a Sovereign Wealth Fund?
A Sovereign Wealth Fund (SWF) is a state-owned investment fund or entity that is commonly established from balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments, fiscal surpluses, and/or receipts resulting from resource exports. The definition of sovereign wealth fund excludes, among other things, foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, state-owned enterprises (SOEs) in the traditional sense, government-employee pension funds (funded by employee/employer contributions), or assets managed for the benefit of individuals.
Interesting Facts About Sovereign Wealth Funds
- Some funds may invest indirectly in domestic industries.
- In addition, they tend to prefer returns over liquidity, thus they have a higher risk tolerance than traditional foreign exchange reserves.
Sovereign Wealth Funds may have their origin in:
- Commodities – Created through commodity exports, either taxed or owned by the government
- Non-Commodities – Usually created through transfers of assets from official foreign exchange reserves
Classifications of Sovereign Wealth Funds
|Traditional Classification of Sovereign Wealth Funds|
|Savings or Future Generations Funds|
|Pension Reserve Funds|
|Reserve Investment Funds|
|Strategic Development Sovereign Wealth Funds (SDSWF)|
|Sovereign Investor Classifications|
|Central Bank or Monetary Authority||Capital Preservation|
|Liquidity Sovereign Investor||Investment Return and Liquidity|
|Liability Sovereign Investor||Investment Return and Liability|
|Strategic Development Sovereign Wealth Funds (SDSWF)||Investment Return and Economic Development|
|Integenerational Sovereign Investor||Investment Return|
|Sovereign Wealth Funds: Nature & Purpose
Each sovereign fund has its own unique reason for its creation; furthermore, all funds have their own objectives.
Common Sovereign Wealth Fund Objectives:
Types of Sovereign Investment Vehicles:
|The legal basis in which sovereign wealth funds are created varies from governmental authority and fund.
Sovereign funds generally indicate that they do not engage directly in macroeconomic policies, but with three key exceptions:
Current Trends – Sovereign Wealth Funds
Size and Growth
Since 2005, at least 40 sovereign wealth funds have been created.
Generally speaking, as other countries grow their currency reserves they will seek to diversify reserve portfolios and generate greater returns. Between the years of 2003 to 2013, sovereign wealth fund assets have skyrocketed by rising commodity prices greatly attributable to oil & gas.
Data: Billions USD
Some sovereign wealth funds are not as transparent as others. For example, one sovereign wealth fund may disclose their investment holdings in a periodic basis, while another fund keeps them private. Since 2008, sovereign wealth funds have taken strides to be more transparent, hoping to dispel fears of protectionism.
Learn more about the Linaburg Maduell Transparency Index
Sovereign Wealth Enterprise (SWE)
Sovereign wealth enterprises (SWE) are investment vehicles that are owned and controlled by sovereign wealth funds. These subsidiaries or vehicles allow greater flexibility for sovereign funds.
Strategic Development Sovereign Wealth Fund (SDSWF)
It is a sovereign wealth fund that can be utilized to promote national economic or development goals. It is commonly accepted that most sovereign funds have a commercial objective which is to earn a positive risk-adjusted return on their pool of assets. There are some sovereign funds known to promote national economic or development goals.
Did you know?
Key Sovereign Wealth Fund Resources
Common List of Abbreviations
ADIA – Abu Dhabi Investment Authority
ADIC – Abu Dhabi Investment Council
CalPERS – California Public Employees Retirement System
CIC – China Investment Corporation
GCC – Gulf Cooperation Council
GIC – Singapore’s Government Investment Corporation
GPFG – Norway’s Government Pension Fund – Global
HSF – Trinidad and Tobago – Heritage and Stabilization Fund
KIA – Kuwait Investment Authority
KIC – Korea Investment Corporation
LIA – Libyan Investment Authority
NWF – National Welfare Fund (Russia)
QIA – Qatar Investment Authority
RDIF – Russian Direct Investment Fund
SAFE – State Administration of Foreign Exchange (China)
SAMA – Saudi Arabian Monetary Agency
SIF – Strategic Investment Fund (France)
SOE – State-Owned Enterprise
SWF – Sovereign Wealth Fund
Also: Fundo Soberano | Staatsfonds | Suverene Fond | Fonds Souverain | Servet Fonu | Fondo Sovrano