What are Sovereign Wealth Funds?
Sovereign Wealth Funds (SWF) are pools of income – generally derived from staple commodities – that a country uses to invest in areas of possible growth, including property, bonds, and shares. The majority of the countries that manage sovereign wealth funds are those that rely on a limited number of commodities – typically one or two – for the predominant source of the country’s income. Middle Eastern countries are perfect examples, as they rely very heavily on oil as their number one source of revenue.
Top 5 SWFs
There are hundreds of sovereign wealth funds today. However, those at the top of the pack have been around and have remained in the lead for many years. Listed below are the five biggest SWFs today.
1. Government Pension Fund Global – Norway
Norway’s Government Pension Fund Global, also commonly referred to as the Oil Fund, currently owns more than $1 trillion in U.S. assets. Established in 1990, the fund was created to funnel Norway’s extensive petroleum sector revenue into diversified assets.
The fund generates most of its revenue from the taxes collected from oil and other types of corporations, as well as from the income generated by companies paying for licenses to explore for oil.
2. China Investment Corporation – China
The China Investment Corporation is an SWF that manages and invests with portions of foreign exchange reserves of the People’s Republic of China. While the exact number of assets currently under management isn’t specified, the estimated value puts the total somewhere near $1 trillion. Most recently, the fund secured a 45% stake in a property in NYC on the Avenue of the Americas, an investment that holds an estimated value near $2 billion. The fund’s also been working on a possible deal to purchase a European warehouse company – Logicor – from The Blackstone Group.
Overseen by a board of directors and supervisors, as well as an executive committee, the fund also employs an outside advisory council comprised of specialists in a number of different countries that include Canada, the United States, South Africa, Brazil, Norway, France, and Australia.
3. Abu Dhabi Investment Authority – Abu Dhabi, UAE
Owned by the Emirate of Abu Dhabi – within the United Arab Emirates (UAE) – the Abu Dhabi Investment Authority (ADIA) is a sovereign wealth fund that was founded to make investments on behalf of the government of the Emirate of Abu Dhabi. Heavily saturated by revenue and income streams generated from the oil industry and oil reserves, the nation’s staggering revenue excess of something near $900 billion is pooled into the ADIA and used to make diversified investments around the world.
The fund’s portfolio enjoys an annual compounded growth rate of approximately 10%, placing it at the top of the most successful SWFs in the world. Though the fund doesn’t make the scale of its total assets public, the Sovereign Wealth Fund Institute – a global organization tasked with keeping tabs on and analyzing SWFs – indicates that the portfolio’s assets sit somewhere in the neighborhood of $790 billion.
4. Kuwait Investment Authority – Kuwait
The Kuwait Investment Authority was started in the early 1950s, designed to help Kuwait pool, invest, and grow their wealth after the discovery of oil and oil reserves. With diversified assets that sit somewhere close to $600 billion, the fund’s remained at the top of the leaderboard, in terms of SWFs, for years.
The Kuwait Investment Authority is governed by a board of directors, headed up by the Minister of Finance, making the fund directly linked to Kuwait’s Ministry of Finance. There are also seats on the board for the governor of the Central Bank of Kuwait, the Energy Minister, and several other financial and oil experts.
5. SAMA Foreign Holdings – Saudi Arabia
SAMA – the Saudi Arabian Monetary Authority – is the central bank of Saudi Arabia and is responsible for the nation’s foreign holdings and investing the nation’s income into diversified assets around the world.
The Saudi Arabian SWF, with assets totaling more than $500 billion, owns approximately $115 billion in U.S. Treasuries. The fund is also heavily invested in the Public Investment Fund, which recently made a billion-dollar investment in Uber Technologies in 2016.
Sovereign wealth funds are incredibly important for countries that generate the majority of their income – or a surplus of income – from a limited number of commodities. The funds enable such nations to invest, diversify, and grow their resources.
CFI is the official provider of the global Financial Modeling & Valuation Analyst certification program, designed to help anyone become a world-class financial analyst. The following resources will be helpful in furthering your financial education: