Sovereign wealth funds (SWFs)— state-owned investment vehicles- have existed for more than a century, but since 2000, their number has increased dramatically.
SWFs -a term first used in 2005 by Andrew Rozanov in an article entitled, "Who holds the wealth of nations?" in the Central Banking Journal- invest in a variety of asset classes, from stocks and bonds to real estate and precious metals.
Overall, the purposes served by SWFs are threefold: Provide capital for the future, reduce the instability of the government's top line and act as holding companies. SWFs serve as asset managers for their government's biggest long-term bets in areas like infrastructure.
Assets under management of SWFs increased for the tenth year running in 2018 to a record $8.109 trillion- equal to around 10% of global GDP-or more than the world's hedge funds and more than private equity.
The first SWFs were non-federal U.S. state funds to fund specific public services.The U.S. state of Texas was thus the first to establish such a scheme, to fund public education.
The Texas Permanent School Fund (TPSF) was created in Austin with a $2,000,000 appropriation by the Texas Legislature in 1854 expressly for the benefit of primary and secondary schools in the state, with the Permanent University Fund (TPUF) following in 1876 to benefit universities.
Fast forward to 2019, current Assets Under Management (AUM) for TPSF is $46,520,638,721 .
There are hundreds of sovereign wealth funds today. However, those at the top of the pack have been around and remained in the lead for many years.
Investopress looks at the world's 10 largest sovereign wealth funds ranked by total assets under management, according to the Sovereign Wealth Fund Institute (SWFI), a global organisation tasked with keeping tabs on and analysing SWFs.
1. Norway Government Pension Fund Global
Scandinavia’s oil-rich Norway tops the list of the largest sovereign wealth funds in the world. Established in Oslo in 1990, Norges Bank Investment Management (Norway GPFG) made headIines in September 2017 after reaching the $1 trillion mark for the first time. The fund oversees investments in more than 70 countries and owns about 1.3 per cent of all listed stocks globally.
2. China Investment Corporation
Established in 2007 in Beijing as “a vehicle to diversify China’s foreign exchange holdings and seek maximum returns for its shareholder within acceptable risk tolerance,” , CIC has been responsible for managing part of Chine’s foreign exchange reserves and is the country’s flagship SWF.
3. Abu Dhabi Investment Authority
(Abu Dhabi, UAE)
The Abu Dhabi Investment Authority (ADIA) was founded in 1976 to make investments on behalf of the government of the Emirate of Abu Dhabi. Its main source of funding comes from oil exports.
4. Kuwait Investment Authority
(Kuwait City, Kuwait)
Founded in 1953, the Kuwait Investment Authority, was the first SWF established for a sovereign state and was designed to help Kuwait invest and grow its wealth after the discovery of oil and oil reserves. The fund's objective is to provide “an alternative to oil reserves, which would enable Kuwait’s future generations to face the uncertainties ahead with greater confidence.”
5. Hong Kong Monetary Authority Investment Portfolio
(Hong Kong, Hong Kong)
Managed by the city-state’s monetary authority, the Hong Kong Monetary Authority (HKMA), the fund was set up in 1935 and focuses its investments primarily in the bond and equity markets of OECD countries. “The Exchange Fund’s primary objective…is to affect, either directly or indirectly, the exchange value of the currency of Hong Kong,” it says on its website.
6. GIC Private Limited
Located in Singapore GIT was founded in 1981 to “preserve and enhance Singapore’s foreign reserves for the future. ” One of the older non-commodity funds on this list, GIC has investments in over 40 countries.
7. National Council for Social Security Fund
Located in Beijing, the National Social Security Fund was established in 2000 as one solution to the country’s rapidly-ageing population. According to the council which oversees the fund, it serves to“supplement and adjust the social security spending during the peak time period of the aging of population.”
8. SAFE Investment Company
Founded in 1997, SAFE Investment Company is the Hong Kong subsidiary of China’s State Administration of Foreign Exchange (SAFE). The fund is known for its investments in foreign-listed companies. Its main purpose is to manage China’s massive foreign currency reserves.
9. Temasek Holdings
Located in Singapore, Temasek Holdings is a government-owned company that manages an investment fund on behalf of the Government of Singapore. It was founded in 1974 and focuses on equity investments. Last month, the closely followed investor globally, reported a plunge in its returns over a one-year period amid a challenging economic environment. Still, the value of its portfolio was 313 billion Singapore dollars (about $230 billion) as of March 31 — growing from 308 billion Singapore dollars in the previous year.
10. Public Investment Fund
(Riyadh, Saudi Arabia)
Located in Riyadh, Saudi Arabia’s sovereign wealth fund was founded in 1971. PIF has laid out plans to raise its assets under management to $400bn by the end of the decade, and eventually hit $2tn by 2030. As per a report in the FT last month, PIF has agreed initial terms for a $10bn loan from a group of the world’s largest banks. PIF is an anchor investor in Japanese congomerate Softbank’s $93bn Vision Fund. Since 2015, PIF has lifted the proportion of international assets in its portfolio to 10 per cent from 1 per cent.
A report published in May by the International Forum of Sovereign Wealth Funds, which represents more than 30 investment managers around the world, shows that SWFs around the world invested $12.85 billion in unlisted companies in 2018, compared with the $10.57 billion allocated to publicly traded stocks.