Author: Tina Aridas, Valentina Pasquali
Project Coordinator: Alessandro Magno, Denise Bedell

A Sovereign Wealth Fund is a state-owned investment fund comprising financial assets such as stocks, bonds, real estate or other instruments and funded by foreign exchange assets. In the latest 2012 ranking, the Abu Dhabi Investment Authority tops the list at US$627 billion, followed by Norway’s Government Pension Fund–Global (US$611 billion) and China’s SAFE Investment Company (US$568 billion). Many of the world’s largest SWFs are financed via oil revenue, such as in the case of the Abu Dhabi Investment Authority and Norway’s Government Pension Fund–Global.

By Valentina Pasquali and Tina Aridas. Project coordinators: Denise Bedell and Alessandro Magno

Data is from the Sovereign Wealth Fund Institute, 2012 Sovereign Wealth Fund Allocation Report.

Ten Largest SWFs in 2012 (in US$ Millions)

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Sovereign wealth funds (SWFs) are managed separately from official currency reserves. They are pools of money governments use to generate profits. Often this money is invested in foreign companies. Their assets can include balance-of-payments surpluses, official foreign currency operations, proceeds of privatizations, fiscal surpluses and/or receipts resulting from commodity exports.

They can be structured as a fund, pool or corporation. They do not include 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.

Data is from the Sovereign Wealth Fund Institute, 2012 Sovereign Wealth Fund Allocation Report.

SWFs by Funding Source

Data is from the Sovereign Wealth Fund Institute, 2012 Sovereign Wealth Fund Allocation Report.

SWFs may originally be created to reduce the volatility of government revenues, to counter the adverse effects of volatility in financial cycles on government spending and the national economy, or to build up savings for future generations.

In 2012, the world’s top 36 SWFs totaled nearly $5 trillion. Oil and gas-related SWFs comprised the majority of the overall dollar amount, at 57.3%. With 40.5% of the total pie, Asia was the region with the largest share, followed by the Middle East with 35.6%.

SWFs usually invest globally, although some also invest indirectly in domestic state-owned enterprises. In addition, they tend to prefer returns over liquidity and thus have a higher risk tolerance than traditional foreign exchange reserves. After some SWFs made bad investments in Wall Street financial firms prior to the 2007-2008 financial crisis, there is some evidence – and much speculation – that SWFs may dial back somewhat on their risk tolerance.

The first ever SWF was the Kuwait Investment Authority, created in 1953 from oil revenues before Kuwait even gained independence from the United Kingdom; that fund is now worth nearly $300 billion. Since 2000, the number of sovereign wealth funds has increased dramatically.

Critics of SWFs point out that as this asset pool continues to expand in size and importance, so does its potential impact on various markets. In addition, foreign investment by SWFs raises some national security concerns because of speculation that the purpose of the investment might be to secure control of strategically important industries for political rather than financial gain. Moreover, the lack of transparency for some of the funds – that is, size and source of funds, investment goals, internal checks and balances, disclosure of relationships and holdings in private equity funds – has been another cause for concern by investors and regulators. The International Monetary Fund’s Santiago Principles have tried to address these concerns.

Data is from the Sovereign Wealth Fund Institute, 2012 Sovereign Wealth Fund Allocation Report.

Largest SFWs – 2012

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