A sovereign wealth fund (SWF), or sovereign investment fund, is a state-owned

investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...

that invests in real and financial assets such as

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

s, bonds, real estate,

precious metal Precious metals are rare, naturally occurring metallic chemical elements of high Value (economics), economic value. Precious metals, particularly the noble metals, are more corrosion resistant and less reactivity (chemistry), chemically reac ...

s, or in alternative investments such as private equity funds or

hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...

s. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign exchange reserves held by the

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

. 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) and

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

(IMF) reserve positions held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. These are assets of the sovereign nations that are typically held in domestic and different reserve currencies (such as the dollar,

euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, currency code: EUR) is the official currency of 20 of the Member state of the European Union, member states of the European Union. This group of states is officially known as the ...

, pound, and yen). Such

investment management Investment management (sometimes referred to more generally as financial asset management) is the professional asset management of various Security (finance), securities, including shareholdings, Bond (finance), bonds, and other assets, such as r ...

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 as ''maximizing 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

The term "sovereign wealth fund" was first used in 2005 by Andrew Rozanov in an article entitled, "Who holds the wealth of nations?" in the ''Central Banking Journal''. 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. China's sovereign wealth funds entered global markets in 2007. Since then, their scale and scope have expanded significantly. SWFs were the first institutions to use sovereign capital in an effort to contain the financial damage in the early stages of the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

. SWFs are able to react quickly in such circumstances because unlike regulators, SWFs actively participate in the market. 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. 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. In the first half of 2014, global sovereign wealth fund direct deals amounted to $50.02 billion according to the SWFI.

Early SWFs

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.M. Nicolas J. Firzli and Joshua Franzel
'Non-Federal Sovereign Wealth Funds in the United States and Canada', Revue Analyse Financière, Q3 2014
The U.S. state of

Texas Texas ( , ; or ) is the most populous U.S. state, state in the South Central United States, South Central region of the United States. It borders Louisiana to the east, Arkansas to the northeast, Oklahoma to the north, New Mexico to the we ...

was thus the first to establish such a scheme, to fund public education. The Permanent School Fund (PSF) was created in 1854 to benefit primary and secondary schools, with the Permanent 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 the

Republic of Texas The Republic of Texas (), or simply Texas, was a country in North America that existed for close to 10 years, from March 2, 1836, to February 19, 1846. Texas shared borders with Centralist Republic of Mexico, the Republic of the Rio Grande, an ...

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 the

Gulf Cooperation Council The Cooperation Council for the Arab States of the Gulf (), also known as the Gulf Cooperation Council (GCC; ), is a Regional integration, regional, intergovernmental organization, intergovernmental, political, and economic union comprising Ba ...

states are among the oldest and largest SWFs. The first SWF established for a sovereign state is the Kuwait 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. Another early registered SWF is the Revenue Equalization Reserve Fund of

Kiribati Kiribati, officially the Republic of Kiribati, is an island country in the Micronesia subregion of Oceania in the central Pacific Ocean. Its permanent population is over 119,000 as of the 2020 census, and more than half live on Tarawa. The st ...

. Since its creation in 1956, when the British administration of the Gilbert Islands in Micronesia put a levy on the export of phosphates used in fertilizer, the fund has grown to $520 million.

Nature and purpose

SWFs are typically created when governments have budgetary surpluses and have little or no international debt. It is not always possible or desirable to hold this excess liquidity 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. SWFs of China are a notable exception to this more typical model. 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 the Government Pension Fund of Norway. It is believed that SWFs in resource-rich countries can help avoid resource 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., in Hugo Chávez's Venezuela or

Shah Shāh (; ) is a royal title meaning "king" in the Persian language.Yarshater, Ehsa, ''Iranian Studies'', vol. XXII, no. 1 (1989) Though chiefly associated with the monarchs of Iran, it was also used to refer to the leaders of numerous Per ...

-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 as war chests for uncertain times. For example, the Kuwait Investment Authority during the

Gulf War , combatant2 = , commander1 = , commander2 = , strength1 = Over 950,000 soldiers3,113 tanks1,800 aircraft2,200 artillery systems , page = https://www.govinfo.gov/content/pkg/GAOREPORTS-PEMD-96- ...

managed excess reserves above the level needed for currency reserves (although many central banks do that now). The Government of Singapore Investment Corporation, Temasek Holdings, or Mubadala are partially the expression of a desire to bolster their countries' standing as an international financial centre. The Korea Investment Corporation has since been similarly managed. Sovereign wealth funds invest in all types of companies and assets, including startups like Xiaomi and renewable energy companies like Bloom Energy. 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. As market participants, SWFs influence other institutional investors, who may see investments made alongside SWFs as inherently safer. 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. SLFs help facilitate a state's ability to use its selective equity investments to promote its industrial policies and strategic interests.

Concerns about SWFs

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 Treasury Lawrence Summers has argued that the U.S. could potentially lose control of assets to wealthier foreign funds whose emergence "shake hecapitalist logic". These concerns have led the

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...

(EU) to reconsider whether to allow its members to use " golden shares" to block certain foreign acquisitions. 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 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. * SWFs are not nearly as homogeneous as central banks or public

pension fund A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides pension, retirement income. The U.S. Government's Social Security Trust Fund, which oversees $2.57 trillion in assets, is the ...

s. * A lack of transparency and hence an increase in risk to the financial system, perhaps becoming the "new hedge funds". 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)

Recent governmental interest

* On 5 March 2008, a joint sub-committee of the U.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 the U.S. Department of Treasury, the U.S. Securities and Exchange Commission, the Federal Reserve Board, Norway's Ministry of Finance, Singapore's Temasek Holdings, and the Canada 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 minister Michael 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. * On 3 February 2025, President

Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who is the 47th president of the United States. A member of the Republican Party (United States), Republican Party, he served as the 45 ...

signed an executive order directing the creation of a

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

sovereign wealth fund within the next year. * On 23 February 2025, Indonesian President

Prabowo Subianto Prabowo Subianto Djojohadikusumo (born 17 October 1951) is an Indonesian politician, businessman, and former four-star Indonesian Army, army general who is serving as the eighth and current president of Indonesia since 2024. He was previously t ...

announced a new sovereign wealth fund Daya Anagata Nusantara, also known as Danantara, which is expected to manage $900 billion in assets. The $20 billion first wave of investments were announced as targeting natural resource processing,

artificial intelligence Artificial intelligence (AI) is the capability of computer, computational systems to perform tasks typically associated with human intelligence, such as learning, reasoning, problem-solving, perception, and decision-making. It is a field of re ...

, and

energy Energy () is the physical quantity, quantitative physical property, property that is transferred to a physical body, body or to a physical system, recognizable in the performance of Work (thermodynamics), work and in the form of heat and l ...

and

food security Food security is the state of having reliable access to a sufficient quantity of affordable, healthy Human food, food. The availability of food for people of any class, gender, ethnicity, or religion is another element of food protection. Simila ...

Santiago Principles

A number of transparency indices sprang up before the Santiago Principles, some more stringent than others. To address these concerns, some of the world's main SWFs came together in a summit in

Santiago Santiago (, ; ), also known as Santiago de Chile (), is the capital and largest city of Chile and one of the largest cities in the Americas. It is located in the country's central valley and is the center of the Santiago Metropolitan Regi ...

, 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 24 Santiago Principles, to set out a common global set of

international standard An international standard is a technical standard developed by one or more international standards organizations. International standards are available for consideration and use worldwide. The most prominent such organization is the International O ...

s regarding transparency, independence, and accountability in the way that SWFs operate. These were published after being presented to the IMF International Monetary Financial Committee on 11 October 2008. They also considered a standing committee to represent them, and so a new organisation, the International Forum of Sovereign Wealth Funds was set up to maintain the new standards going forward and represent them in international policy debates. As of 2016, 30 funds have formally signed up to the Principles, representing collectively 80% of the assets managed by sovereign funds globally or US$5.5 trillion. 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.

Size of SWFs

Assets under management In finance, assets under management (AUM), sometimes called fund under management, refers to the total market value of all financial assets that a financial institution—such as a mutual fund, venture capital firm, or depository institutio ...

of SWFs amounted to $7.94 trillion as of 24 December 2020. Countries with SWFs funded by oil and gas exports, totaled $5.4 trillion as of 2020. 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 of SWFs

Numerous SWFs have gone bust throughout history. The most notable ones have been Algeria's FRR, Brazil's FSB, 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. 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. Highly stable countries, such as Denmark, Qatar, China, or Australia are less likely to experience SWF depletion precisely because of their political stability.

Largest sovereign wealth funds