A Guide for Sovereign Wealth Funds

by September 26, 2019
Sovereign Wealth Funds help to connect the global economy across borders. (Photo Credit: Pixabay)

What is a SWF?

A sovereign wealth fund (SWF) is a group of investments managed by an individual country. Much like an IRA for an individual, an SWF is a vehicle for a single nation to pool money and invest in commodities, equity in individual companies and real estate across the globe.

These funds are typically overseen by a country’s central bank or finance ministry, and the money comes from budgetary surpluses and income from financial assets. Similar to a pension fund, these SWF’s are established to secure the long term financial stability for nations and their citizens.

Who has a SWF?

While SWF’s have not found much support in the Americas, they are popular in Europe, Asia and the Middle East. The largest funds are in Norway, China and the United Arab Emirates. The image below has a list of the top 10 largest SWF’s.

Source: Reuters Graphics, “Largest Sovereign Wealth Funds” 

Notably, the United States does not have this type of state-run fund managed by the Federal Reserve. A few individual states like Alaska and Alabama have established their own wealth funds, but there is not a single unified investment fund for the Federal Government of the United States.

An SWF, like any investment, looks to diversify risk. For a country like Saudia Arabia, they use their SAMA Foreign Holdings fund to take money for oil revenues and spread it into ventures in other industries and countries.

Despite sharing a common investment vehicle, each of these SWF’s have different goals and ways of looking at the world. This is often reflected in their names. Some mention the word pension or welfare, while others take more generic names like the “Korea Investment Corporation.”

The most sterling example of a SWF comes from Norway. Their “Government Pension Fund” or “Oil Fund” is the largest SWF in the world. Originally established to responsibility manage income from Noreweigan off-shore drilling, the fund has grown to be valued at over a trillion dollars. They are currently invested in over 9,000 companies across 73 different countries. This fund has become a defining feature of the Norwegian economy, and works to embody Norwegian values. More information about the Norwegian Oil Fund is available here

Takeaways for Business Journalists

SWF’s are extremely influential in the global economy, and yet most people do not even know they exist. The Norwegian Oil Fund alone is about as valuable or Apple or Microsoft, but exists with much more anonymity. The fates of individual companies, international relationships and entire nations are in the balance when looking at SWF’s.

Ideas of creating SWF for the EU have been pitched recently, while American advisors help to further integrate the economic relationships with Libya. Russia, China and Saudi Arabia all have considerable money in SWF’s, which is something Americans should be aware of. 

SWF’s are essentially just rich investors, and just like individuals, they have values that dictate where their money goes. The Norewgian Pension Fund has banned investment from many equities because they produce weapons of war. The Korean wealth fund recently shifted funds around between American automotive companies. Some SWF’s aim to expand global influence, while others let their values guide their investments.

Some SWF’s are more transparent about where they investments are than others. It may take some digging, but understanding where SWF’s put their money can be illuminating for the country’s strategic goals.

Any business reporter can benefit from knowledge of SWF’s, because these funds impact the economies of all sizes across the globe. The actions of the Australian Future Fund may have massive implications for the American economy. It’s up to journalists to understand this investment vehicle and contextualize the ways that it impacts their reporting.  

Further Readings: 

Investopedia, An Introduction to Sovereign Wealth Funds

The Sovereign Wealth Fund Institute, https://www.swfinstitute.org/

The Economist covers SWF’s regularly