What are sovereign wealth funds? Investing Explained

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INVESTING EXPLAINED: What you need to know about SWFs…and which are the most controversial

In this series, we break the jargon and explain a popular investing term or topic. Here, it is the sovereign funds.

What are sovereign wealth funds?

A sovereign wealth fund (SWF) is a government fund that invests in a range of assets, including bonds, stocks, precious metals, private equity and real estate.

There are around 95 sovereign wealth funds around the world managing around $9 trillion in assets, giving them enormous power and influence in global markets, and they have shown a particular appetite for buying or investing in companies British.

Their cash comes from oil and other resource export revenues, privatization proceeds, state surpluses and foreign exchange reserves.

State-owned: Sovereign wealth funds have been compared to rainy-day savings jars for nations

How do they work?

SWFs have been compared to nations’ rainy day savings pots. But despite this common goal of supporting the state, they operate in different ways, with varying goals. Some, like those in the Middle East and Norway, manage the country’s oil wealth.

Others are responsible for the effective management of the country’s assets, while others have specific priorities. China’s National Social Security, the second of that country’s sovereign wealth funds, for example, provides funds for the social security system.

What are the most important funds?

The largest in the world is the $1.33 trillion investment management of Norges Bank, established in 1969 following Norway’s discovery of North Sea oil.

Other members of the top five are: China Investment Corporation ($1.2 trillion), Abu Dhabi Investment Authority ($829 billion), China State Administration of Foreign Exchange ($817 billion) dollars) and the Government of Singapore Investment Corporation ($744 billion). .

The value of the Norwegian fund is equivalent to $257,000 for every man, woman and child in this country. Soaring oil prices will have pushed that number up.

Are they independent of government?

Many funds are closely tied to their governments, seeking to promote their interests and strengthen their power. Others are separate entities, answerable to their governments, but not directed by them.

Nicolai Tangen, managing director of the Norwegian fund, says the fund is financial rather than political. But the country’s center-left government ordered the fund to freeze its Russian assets. These will be written off.

Does the UK have a fund?

Britain does not have a sovereign wealth fund, although Whitehall reportedly considered setting one up in 2020. Taxpayers’ money would have been used to support regional businesses as part of the post-pandemic leveling scheme.

Funds from other nations like to buy UK assets. For example, the Qatar Investment Authority owns Harrods, a stake in Canary Wharf, The Shard and is Sainsbury’s largest shareholder.

Which fund is the most controversial?

There are frequently differences of opinion on investment choices in funds.

Saudi Arabia’s Public Investment Fund – which aims to project Saudi influence and diversify the economy – is often in the headlines.

The £300m fund’s purchase of an 80% stake in football club Newcastle United last year was opposed by many. Currently, the Russian Direct Investment Fund is the sovereign wealth fund in the spotlight. The United Kingdom is among the countries that have frozen its assets.

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