Institutional Framework of Sovereign Wealth Funds

Sovereign wealth funds have all different sorts and flavors of institutional frameworks. The two most popular frameworks are the company-development model and manager model.

1. Company-Development ModelInstitutional Framework
The government elects to create an investment company that will manage government assets. This investment entity may also have strategic development objectives as well. Company-Development models tend to act similar to large state-owned conglomerates. In addition, this model often permits the investment company the ability to raise debt and manage third-party assets.

2. Manager Model
In this model, the owner of the assets is a government arm such as a ministry of finance or treasury. The government arm then gives investment mandates to an asset manager. The manager model can be broken down into three sub-categories:

    1. Central Bank Manager Model
    The central bank manages the assets and has direction from the treasury or ministry of finance.

    2. Ministry of Finance Direct Model
    The treasury or ministry of finance extends mandates to asset managers.

    3. Investment Company Model
    This model entails the creation of a separate fund management entity that is owned by the government to manage the assets.