We always hear about the importance of individuals investing their income to develop it and exploit economic opportunities. This is at the individual level. What about the level of countries? Should countries also invest their income?
A sovereign wealth fund is a state-owned investment fund working on investing the money generated by the government, often derived from a country's surplus reserves. It is aiming to develop and diversify the country's economy to stabilize it and produce wealth for future generations.
The first investment fund was established in 1953
, the Kuwait Investment Authority, which aimed to invest in excess oil revenues.
Types of Sovereign Wealth Funds
There are 169 sovereign wealth funds in the world, some countries have more than one, whereas the United States has 23 SWFs, which makes them the country with the most SWFs in the world.
There are many different types of sovereign wealth funds; each with its own set of investment rules, objectives, and purposes. Some of these types include:
strategic development sovereign wealth funds, savings or future generation funds, stabilization funds, and reserve investment funds.
Governments have the ability to employ different types of sovereign wealth funds at once, but they often prefer to prioritize one or a few funds over the others.
Fund and investment:
SWF receives funding from a variety of sources, Popular sources include trade surpluses, bank excesses reserves, foreign currency operations, proceeds from privatizations, and government transfer payments. this funding is invested in different asset classes such as stocks, bonds, real estate, private equity, and hedge funds, also Many SWFs are directly investing in institutional real estate.
The appropriate type of assets for the fund is selected by considering the fund's specific strategies and objectives, as well as liquidity concerns and risk tolerance.
The three largest sovereign funds in terms of assets:
1-China Investment corporation
With total assets up to $1.35trillion
2- Government Pension Fund
With total assets up to $1.136 trillion
3- Abu Dhabi Investment Authority
With total assets up to $8.29 million
On the other hand, one of the fastest developing and growing funds in the volume of assets and support of the country's economy especially during the pandemic is the Saudi Public Investment Fund, where its assets increased from 1.2 trillion riyals in 2019 to 2.3 trillion riyals in 2022.