A Survey of Emerging Sovereign Wealth Funds

May 15, 2013 by Sven Behrendt

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OVER THE PAST four years, sovereign wealth fund creation has picked up again as governments and lawmakers have begun to reexamine the usefulness of these investment vehicles in advancing national economic and social interests. Although recent debates about the role and purpose of sovereign wealth funds have highlighted concerns in developed markets about the risks associated with foreign-state-backed investments, those discussions also have ushered in a greater understanding of sovereign wealth funds as powerful instruments of economic policymaking. The financial crisis temporarily disrupted the formation of new funds, but many of the underlying drivers that have historically fueled their creation, including a decadelong boom in commodities prices, appear to remain intact.

The purpose of this paper is to identify those drivers and examine how they have influenced sovereign wealth fund formation in specific national contexts. GeoEconomica has identified more than 20 cases since 2009 in which countries with vast natural resources or excess currency reserves have either contemplated or initiated the formation of national or subnational sovereign wealth funds. Some of the funds created in the past few years may stretch the definition of a sovereign wealth fund, which can be loosely described as a government-owned special-purpose investment vehicle. But sovereign wealth funds are designed to deliver on a wide variety of objectives, and for the sake of inclusiveness we have cast a wide net.

Based on our observations, the global community of sovereign wealth funds appears poised to grow substantially, as governments remain committed to playing an increasing role in the global financial architecture as active investors. Many governments are now setting up sovereign wealth funds in anticipation of excess revenue. The new sovereign funds we identify below are relatively small and have been collectively launched by individual capital injections worth between $40 billion and $50 billion. We expect a steady numerical expansion of sovereign wealth funds even as their total assets under management remain modest relative to those held by more-mature funds.

Dr. Sven Behrendt is founder and managing director of GeoEconomica, a political risk research and advisory firm based in Geneva. His work focuses on global macro risks, scenario planning and resilience, the transformation of global financial markets and the emerging role of sovereign wealth management, energy and Middle East politics.

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