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Sovereign Weath Funds

In: Business and Management

Submitted By hazemkortam
Words 1136
Pages 5
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 composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets. These assets can include: balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports. Sovereign Wealth Funds can be structured as a fund, pool, or corporation. The definition of sovereign wealth fund exclude, 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, or assets managed for the benefit of individuals.
Some funds also invest indirectly in domestic state-owned enterprises. In addition, they tend to prefer returns over liquidity, thus they have a higher risk tolerance than traditional foreign exchange reserves.
History
The term sovereign wealth fund was first used in 2005 by Andrew Rozanov in an article entitled, 'Who holds the wealth of nations?' in Central Banking journal[1]. 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 upwards.
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.
Some Fund Objectives: Protect & stabilize the budget and economy from excess volatility in revenues/exports Diversify from non-renewable commodity exports Earn greater returns than on foreign exchange reserves Assist monetary authorities dissipate unwanted liquidity Increase savings for future generations Fund social and economical development Sustainable long term capital growth for target countries Political strategy
Some countries may have more than one SWF, see also the full list of SWF's.
Rank Country Funds Assets $Billion Origin
1 China
CADF / CIC / NSSF / SAFE
787.4
Non-commodity
2 United Arab Emirates
ADIA / ADIC / EIA / ICD /
IPIC / MDC / RIA
675.1++
Oil
3 Norway
GPF
443
Oil
4 Saudi Arabia
PIF / SAMA
437.3
Oil
5 Singapore
GIC / TH
369.5
Non-commodity
6 Kuwait
KIA
202.8
Oil
7 Russia
RNWF
142.5
Oil
8 Hong Kong
HKMA
139.7
Non-commodity
9 Libya
LIA
70
Oil
10 Qatar
QIA
65
Oil
11 Australia
AFF
59.1
Non-commodity
12 United States
APF / NMSIOT /
PWMTF
52
Gas / Minerals /
Non-commodity / Oil
13 Algeria
RRF
47
Oil
14 Kazakhstan
KNF
38
Oil
15 Ireland
NPRF
30.6
Non-commodity
16 Brunei
BIA
30
Oil
17 France
SIF
28
Non-commodity
18 South Korea
KIC
27
Non-commodity
19 Malaysia
KN
25
Non-commodity / Oil
20 Iran
OSF
23
Oil
21 Chile
SESF
21.8
Copper
22 Azerbaijan
SOF
14.9
Oil
23 Bahrain
MHC
14
Oil
24 Canada
AHF
13.8
Oil
25 New Zealand
NZSF
12.1
Non-commodity
26 Nigeria
ECA
9.4
Oil
27 Brazil
SFB
8.6
Non-commodity
28 Oman
OIF / SGRF
8.2+
Gas / Oil
29 Botswana
PF
6.9
Diamonds / Minerals
30 East Timor
TLPF
5.0
Gas / Oil
31 Trinidad and Tobago
HSF
2.9
Oil
32 Venezuela
FEM
0.8
Oil
33 Vietnam
SCIC
0.5
Non-commodity
34 Kiribati
RERF
0.4
Phosphates
35 Indonesia
GIU
0.3
Non-commodity
36 Mauritania
NFHR
0.3
Gas / Oil

Sovereign wealth funds have been around for decades but since 2000, the number of sovereign wealth funds have increased dramatically. The first SWF was the Kuwait Investment Authority, a commodity SWF created in 1953 from oil revenues before Kuwait even gained independence from the United Kingdom. According to many estimates, Kuwait's fund is now worth approximately $250 billion. Nature and purpose
SWFs are typically created when governments have budgetary surpluses and have little or no international debt. This excess liquidity is not always possible or desirable to hold as money or to channel it into consumption immediately. This is especially the case when a nation depends on raw material exports like oil, copper or diamonds. SWFs may be created to reduce the volatility of government revenues, to counter the boom-bust cycles' adverse effect on government spending and the national economy, or to build up savings for future generations. One such fund is the Government Pension Fund of Norway. 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 economical, 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.
Concerns about SWFs
There are several reasons why the growth of sovereign wealth funds is attracting close attention.
• As this asset pool continues to expand in size and importance, so does its potential impact on various asset markets.
• Some countries 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.[3] [4] These concerns have led the EU to reconsider whether to allow its members to use 'golden shares' to block certain foreign acquisitions.[5] Therefore, 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 U.S., 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 (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. Many of these concerns have been addressed by the IMF and its Santiago Principles, which set out common standards regarding transparency, independence and governance.[6]
• SWFs are not nearly as homogeneous as central banks or public pension funds. However they do have a number of interesting and unique characteristics in common. These make them a distinct and potentially valuable tool for achieving certain public policy and macroeconomic goals

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