Sovereign Wealth Funds

Sovereign wealth funds (SWFs) are special purpose capital pools set up by governments to hold, invest, or manage a portion of their reserves in foreign assets. There are several variations of SWFs: public pension funds, state-owned enterprises, and sovereign wealth enterprises. The legal basis from which these various investment vehicles are created includes constitutional law, fiscal law, company law, and certain other laws or regulations.

Common SWF objectives include the following:

• Protect and stabilize the budget and economy from excess volatility in revenues and exports
• Enable the country to diversify from nonrenewable commodity exports
• Enable the country to earn greater returns than on foreign exchange reserves
• Assist monetary authorities dissipate unwanted liquidity
• Intergenerational wealth transfer
• Fund social and economic development
• [Page 3212]Provide sustainable long-term capital growth for target countries
• Support the government’s political strategy

Institutional ...