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Sovereign wealth fund

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State-owned investment fund

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Asovereign wealth fund (SWF), orsovereign investment fund, is a state-ownedinvestment fund that invests in real and financial assets such asstocks,bonds, real estate,precious metals, or in alternative investments such asprivate equity funds orhedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or fromforeign exchange reserves held by thecentral bank.

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 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 (SDRs) andInternational Monetary Fund (IMF) reserve positions held by central banks and monetary authorities, along with other national assets such aspension investments,oil funds, or other industrial and financial holdings. These are assets of the sovereign nations that are typically held in domestic and differentreserve currencies (such as thedollar,euro,pound, andyen). Suchinvestment management 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 asmaximizing 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.

History

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The term "sovereign wealth fund" was first used in 2005 by Andrew Rozanov in an article entitled, "Who holds the wealth of nations?" in theCentral 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 upward.^{[citation needed]}

China's sovereign wealth funds entered global markets in 2007.^[2]^: 4 Since then, their scale and scope have expanded significantly.^[2]^: 4

SWFs were the first institutions to use sovereign capital in an effort to contain the financial damage in the early stages of the2008 financial crisis.^[2]^: 1–2 SWFs are able to react quickly in such circumstances because unlike regulators, SWFs actively participate in the market.^[2]^: 2

SWFs grew rapidly between 2008 and 2021, with global assets under management by these funds increasing from approximately $4 trillion to more than $10 trillion.^[2]^: 3

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.^[3] In the first half of 2014, global sovereign wealth fund direct deals amounted to $50.02 billion according to the SWFI.^[4]

Early SWFs

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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.^[5] The U.S. state ofTexas was thus the first to establish such a scheme, to fund public education. ThePermanent School Fund (PSF) was created in 1854 to benefit primary and secondary schools, with thePermanent University Fund (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 theRepublic 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 SWFs of theGulf Cooperation Council states are among the oldest and largest SWFs.^[6]^: 101 The first SWF established for a sovereign state is theKuwait Investment Authority, a commodity SWF created in 1953 from oil revenues before Kuwait gained independence from the United Kingdom. As of July 2023, Kuwait's Sovereign Wealth Fund, or locally known as Ajyal Fund, is now worth $853 billion.^[7]

Another early registered SWF is theRevenue Equalization Reserve Fund ofKiribati. Since its creation in 1956, when the British administration of theGilbert Islands in Micronesia put a levy on the export ofphosphates used infertilizer, the fund has grown to $520 million.^[8]

Nature and purpose

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Dividend payments of 1.5% on initial $1B investment
$26.7 billion in total dividend payments over 40 years.
Dividends were not reinvested and can be used as revenue for the government.

SWFs are typically created when governments have budgetary surpluses and have little or no international debt.^{[dubious –discuss]} It is not always possible or desirable to hold this excessliquidity 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.

SWFs are primarily commodity-based and many have been established by oil-rich states.^[2]^: 5 SWFs of China are a notable exception to this more typical model.^[2]^: 5

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 theGovernment Pension Fund of Norway. It is believed that SWFs in resource-rich countries can help avoidresource curse, 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., inHugo Chávez's Venezuela orShah-era Iran. In such circumstances, saving money to spend during a period of low inflation is often desirable.

Other reasons for creating SWFs may be economic, or strategic, such aswar chests for uncertain times. For example, theKuwait Investment Authority during theGulf War managed excess reserves above the level needed for currency reserves (although many central banks do that now). TheGovernment of Singapore Investment Corporation,Temasek Holdings, orMubadala are partially the expression of a desire to bolster their countries' standing as an international financial centre. TheKorea Investment Corporation has since been similarly managed. Sovereign wealth funds invest in all types of companies and assets, including startups likeXiaomi and renewable energy companies like Bloom Energy.^[9]

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 be understood as a fad whereby certain governments consider it fashionable to create SWFs and are influenced by what their peers are doing.^[10]

As market participants, SWFs influence other institutional investors, who may see investments made alongside SWFs as inherently safer.^[2]^: 9 This effect can be seen with increasing frequency, especially with regard to investments made by the Government Pension Fund of Norway,Abu Dhabi Investment Authority, and Temasek Holdings, and China Investment Corporation.^[2]^: 9 SLFs help facilitate a state's ability to use its selective equity investments to promote its industrial policies and strategic interests.^[2]^: 9

In the context ofartificial intelligence (AI) development, SWFs have been proposed as tools for managing potential social and economic disruption fromautomation, including supporting national AI leadership through strategic infrastructure investment, acquiring equity stakes in AI companies, and distributing AI-derived returns throughuniversal basic dividends or stabilization funds.^[11]^[12]^[13]^[14]

Concerns

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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 TreasuryLawrence Summers has argued that the U.S. could potentially lose control of assets to wealthier foreign funds whose emergence "shake[s] [the] capitalist logic".^[5] These concerns have led theEuropean Union (EU) to reconsider whether to allow its members to use "golden shares" to block certain foreign acquisitions.^[15] 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 theExon–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 theCommittee on Foreign Investment in the United States (CFIUS).^{[further explanation needed]}
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 publicpension funds.
A lack of transparency and hence an increase in risk to the financial system, perhaps becoming the "new hedge funds".^[16]

The governments of SWFs 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)^[17]

Recent governmental interest

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On 5 March 2008, a joint sub-committee of theU.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 theU.S. Department of Treasury, theU.S. Securities and Exchange Commission, theFederal Reserve Board, Norway's Ministry of Finance, Singapore'sTemasek Holdings, and theCanada Pension Plan Investment Board.
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 ministerMichael 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 2015, Qatar announced a $35 billion investment in United States assets over a period of five years.^[18]^[19]
On 3 February 2025, PresidentDonald Trump signed an executive order directing the creation of aUnited States sovereign wealth fund within the next year.^[20]
On 23 February 2025, Indonesian PresidentPrabowo Subianto announced a new sovereign wealth fund Daya Anagata Nusantara, also known asDanantara, which is expected to manage $900 billion in assets.^[21] The $20 billion first wave of investments were announced as targetingnatural resource processing,artificial intelligence, andenergy andfood security.^[22]
Sovereign wealth funds from Oman, Qatar, Saudi Arabia, Singapore, and theUnited Arab Emirates have acquired stakes in frontier AI companies includingOpenAI,Anthropic, andxAI.^[11]

Santiago Principles

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Further information:Santiago Principles

A number of transparency indices sprang up before the Santiago Principles, some more stringent than others.^{[citation needed]} To address these concerns, some of the world's main SWFs came together in a summit inSantiago, 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 24Santiago Principles, to set out a common global set ofinternational standards regarding transparency, independence, and accountability in the way that SWFs operate.^[23]^[24] These were published after being presented to the IMF International Monetary Financial Committee on 11 October 2008.^[24] They also considered a standing committee to represent them, and so a new organisation, theInternational Forum of Sovereign Wealth Funds was set up to maintain the new standards going forward and represent them in international policy debates.^[25]

As of 2016, 30 funds^[26] have formally signed up to the Principles, representing collectively 80% of the assets managed by sovereign funds globally or US$5.5 trillion.^[27]

Natural resource-rich developing economies are typically encouraged to adopt good governance standards for sovereign wealth funds, such as the Santiago Principles, which emphasize transparency, accountability, and sound investment practices. This approach is often preferred over local content policies, which can foster corruption and rent-seeking behavior in contexts with weak governance.^[28]

Size

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Assets under management of SWFs amounted to $7.94 trillion as of 24 December 2020.^[29]

Countries with SWFs funded by oil and gas exports, totaled $5.4 trillion as of 2020.^[30] 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.

Depletion

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Numerous SWFs have gone bankrupt throughout history. The most notable ones have been Algeria's FRR, Brazil'sFSB, Ecuador's numerous SWF arrangements, Papua New Guinea's MRSF, and Venezuela's FIEM and FONDEN. The main reason why these funds have been exhausted is due to political instability, while economic determinants generally play a less important role.^[31]

SWFs in unstable countries may provoke risks for recipient states of SWF investments, given that the instability in SWF-sponsor countries makes those investments uncertain and likely to be disinvested to weather political risk in the short-term.^{[citation needed]}

Highly stable countries, such as Denmark, Qatar, China, or Australia are less likely to experience SWF depletion precisely because of their political stability.^{[citation needed]}

Largest sovereign wealth funds

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Country or region	Abbrev.	Fund name	Assets^[32] (billions US$)	Inception	Origin
Norway	GPF-G	Government Pension Fund Global	2,044^[33]	1990	Oil & Gas
China	CIC	China Investment Corporation	1,332^[34]	2007	Non-commodity
China	SAFE	SAFE Investment Company	1,090^[35]	1997^[35]	Non-commodity
United Arab Emirates	ADIA	Abu Dhabi Investment Authority	1,057^[36]	1976	Oil & Gas
Kuwait	KIA	Kuwait Investment Authority	1,029^[37]	1953	Oil & Gas
Saudi Arabia	PIF	Public Investment Fund	941^[38]	1971	Oil & Gas
Singapore	GIC	GIC Private Limited	801^[39]	1981	Non-commodity
Qatar	QIA	Qatar Investment Authority	557^[40]	2005	Oil & Gas
Hong Kong	HKMA	Exchange Fund (Hong Kong)	514^[41]	1935^[42]	Non-commodity
China	NSSF	National Council for Social Security Fund	414^[43]	2000	Non-commodity
Singapore	CPF	Central Provident Fund	436^[44]	1955	Pension fund
United Arab Emirates	ICD	Investment Corporation of Dubai	341^[36]	2006	Oil & Gas
Turkey	TWF	Turkey Wealth Fund	360^[45]	2017	Non-commodity
United Arab Emirates	PJSC	Mubadala Investment Company	302^[46]	2002	Oil & Gas
Singapore	TH	Temasek Holdings	287^[47]^[48]	1974	Non-commodity
Australia	FF	Future Fund	158^[49]	2006	Non-commodity
United Arab Emirates	ADQ	Abu Dhabi Developmental Holding Company	196^[50]	2018	Non-commodity
South Korea	KIC	Korea Investment Corporation	189^[51]	2005	Non-commodity
Iran	NDFI	National Development Fund	156^[52]	2011	Oil & Gas
Russia	NWF	Russian National Wealth Fund	133^[53]^[54]	2008	Oil & Gas
Canada	AIMCo	Alberta Investment Management Corporation	123^[55]	2008	Non-commodity
United Arab Emirates	EIA	Emirates Investment Authority	87^[56]	2007	Oil & Gas
Kazakhstan	SK	Samruk-Kazyna	80.665^[57]	2008	Oil & Gas
United Arab Emirates	DW	Dubai World	80^[58]	2005	Non-commodity
United States	APF	Alaska Permanent Fund	80.463^[59]	1976	Oil & Gas
Brunei	BIA	Brunei Investment Agency	73^[60]	1983	Oil & Gas
Libya	LIA	Libyan Investment Authority	67^[61]	2006	Oil & Gas
United States	PSF	Texas Permanent School Fund	57.291^[62]	1854	Land & Mineral Royalties
Kazakhstan	NF	Kazakhstan National Fund	55.7^[63]	2012	Oil & Gas
Oman	OIA	Oman Investment Fund	47	2020	Oil & Gas
Azerbaijan	SOFAZ	State Oil Fund of the Republic of Azerbaijan^[64]	43	1999	Oil & Gas
Austria	ÖBAG	Österreichische Beteiligungs AG	38.4^[65]	1967	Non-commodity
United States	PUF	Texas Permanent University Fund	36.469^[66]	1876	Land & Mineral Royalties
Malaysia	KN	Khazanah Nasional	36.1^[67]	1993	Non-commodity
New Zealand	NZSF	New Zealand Superannuation Fund	35.1^[68]	2003	Non-commodity
France	BPI	Bpifrance	33.5^[69]	2008	Non-commodity
United States	LGPF	New Mexico Land Grant Permanent Fund	32.093^[70]	1912	Land & Mineral Royalties
Russia	RDIF	Russian Direct Investment Fund	25^[71]	2011	Non-commodity
Germany	NWDF	Nuclear Waste Disposal Fund	25^[72]	2017	Non-commodity
Norway	GPF-N	Government Pension Fund – Norway	22	2006	Oil & Gas
Papua New Guinea	PNGSWF	Papua New Guinea Sovereign Wealth Fund	22	2011	Oil & Gas
Indonesia	Danantara	Danantara Indonesia Sovereign Fund	20^[73]^[74]^[75]^[76]	2025	Oil & Gas / Non-commodity
Bahrain	BMHC	Mumtalakat Holding Company	18.3^[77]	2006	Oil & Gas
Timor Leste	TLPF	Timor-Leste Petroleum Fund	17^[78]	2005	Oil & Gas
Ireland	ISIF	Ireland Strategic Investment Fund^[79]	16.1^[80]	2014	Non-commodity
Canada	AHSTF	Alberta Heritage Savings Trust Fund	15^[81]^[82]	1976	Oil & Gas
Japan	JIC	Japan Investment Corporation	12.2^[83]	2018	Non-commodity
Colombia	FAEP	Fondo de Ahorro y Estabilización Petrolera	12	1995	Oil & Gas
Greece	HCAP	Growthfund	12^[84]	2016	Non-commodity
Chile	ESSF	Economic and Social Stabilization Fund^[85]	11	2007	Copper
Chile	PRF	Pension Reserve Fund	11	2006	Copper
United States	PWMTF	Permanent Wyoming Mineral Trust Fund	11.130^[86]	1974	Minerals
Philippines	MIF	Maharlika Investment Fund	9.2	2023	Non-commodity
Ireland	FIF	Future Ireland Fund	9.1^[87]	2024	Non-commodity
United States	NDLF	North Dakota Legacy Fund	10.879^[88]	2011	Oil & Gas
United States	STPF	New Mexico Severance Tax Permanent Fund	9.747^[70]	1973	Oil & Gas
United Kingdom	NWF	National Wealth Fund	27.8^[89]	2024	Non-commodity
Pakistan	PK	Pakistan Sovereign Wealth Fund	8.06^[90]	2023	Non-commodity
Indonesia	INA	Indonesia Investment Authority	7.6^[91]	2021	Non-commodity
Mexico	FMP	Fondo Mexicano del Petroleo para la Estabilizacion y el Desarrollo	7	2000	Oil & Gas
Trinidad & Tobago	HSF	Heritage and Stabilization Fund^[92]	5.6^[93]	2000	Oil & Gas
India	NIIF	National Investment and Infrastructure Fund	5.3^[94]	2015	Non-commodity
China	CADF	China-Africa Development Fund	5^[95]	2007	Non-commodity
Peru	FSF	Fiscal Stabilization Fund^[96]	5	1999	Non-commodity
Italy	CDP Equity	Cassa Depositi e Prestiti Equity^[97]	394^[98]	2011	Non-commodity
Botswana	PF	Pula Fund	4.1^[99]	1994	Diamonds
United States	ATF	Alabama Trust Fund	3.4^[100]	1985	Oil & Gas
United States	IEFIB	Idaho Endowment Fund Investment Board^[101]	3.2^[102]	1969	Land & Mineral Royalties
United States	SIFTO	Utah School and Institutional Trust Funds Office^[103]	2.5	1983	Land & Mineral Royalties
Vietnam	SCIC	State Capital Investment Corporation	2.4^[104]	2006	Non-commodity
Nigeria	NSIA	Nigeria Sovereign Investment Authority	2.3^[105]	2011	Oil & Gas
Angola	FSDEA	Fundo Soberano de Angola	2.2^[106]	2012	Oil & Gas
Israel	CIF	Israeli Citizens' Fund	2.08^[107]	2022	Gas & Minerals
Belgium	SFPIM	Federale Participatie- en Investeringsmaatschappij [fr]	2	1962	Non-commodity
United Arab Emirates	RAKIA	Ras Al Khaimah Investment Authority	2	2005	Oil & Gas
United Arab Emirates	SAM	Sharjah Asset Management Holding^[108]^[109]	2	2008	Non-Commodity
United States	CSF	Oregon Common School Fund	2	1859	Lands & Mineral Royalties
Kuwait	AWQAF	Awqaf and Islamic Affairs Fund^[110]	1.99	1993	Non-commodity
Panama	FAP	Fondo de Ahorro de Panama^[111]	1.4^[112]	2012	Non-commodity
United States	LEQTF	Louisiana Education Quality Trust Fund^[113]	1.5^[114]	1986	Oil & Gas
United States	BCPL	Wisconsin Board of Commissioners of Public Lands	1.4	1848	Land, Timber and Non-commodity
United States	FMP	Colorado Public School Fund Endowment Board	1.2	2016	Lands and Minerals Royalties
Gabon	FGIS	Fonds Gabonais d'Investissements Strategiques	1.0	2012	Oil & Gas
Palestine	PIF	Palestine Investment Fund	0.9^[115]	2003	Non-commodity
Ghana	GPF	Ghana Petroleum Funds	0.9	2011	Oil & Gas
Australia	WAFF	Western Australian Future Fund	0.9^[116]	2012	Minerals
Turkmenistan	TSF	Turkmenistan Stabilization Fund	0.5	2008	Oil & Gas
Bolivia	FINPRO	Fondo para la Revolución Industrial Productiva^[117]	0.4	2015	Non-commodity
Kiribati	RERF	Revenue Equalization Reserve Fund	1.5	1956	Phosphates
Equatorial Guinea	FRGF	Fonds de Réserves pour Générations Futures	0.2	2002	Oil & Gas
Rwanda	AGDF	Agaciro Development Fund^[118]	0.2^[119]	2012	Non-commodity
United States	WVFF	West Virginia Future Fund	0.1^[120]	2014^[121]	Oil & Gas
Mauritania	NFHR	National Fund for Hydrocarbon Reserves	0.1^[122]	2006	Oil & Gas
Mongolia	FHF	Chinggis Fund, Future Heritage Fund^[123]	0.1	2011	Minerals
Nigeria	BDIC	Bayelsa Development and Investment Corporation	0.1	2012	Non-commodity
Senegal	FONSIS	Fonds Souverain d'Investissement Strategiques^[124]	0.1	2012	Non-commodity