Posts Tagged ‘Financial Analysts’
Sovereign Wealth Funds: Funds that hold the wealth of nations
Over the years a good amount fund administration activities by financial analysts has been centered around Sovereign Wealth Funds (SWF). According to this article on SWF, the first SWF was a commodity SWF created in 1953 of the Kuwait Investment Authority from the oil revenues before Kuwait gained independence from Great Britain. However, the term Sovereign Wealth Fund was first used in an article entitled, ‘Who holds the wealth of nations?‘, by Andrew Rozanov.
Sovereign Wealth Fund Size
Where does this money come from?
The foreign reserves of countries are typically in dollars, euros, or yen. However when a country accumulates more reserves than it feels isnecessary for immediate purposes, it usually creates a sovereign fund to manage those resources. Some countries such as Kuwait and the United Arab Emirates (UAE) have created SWFs to diversify their revenue streams as their revenue streams rely heavily on oil exports and are vulnerable ups and downs of the oil market. The SWFs thus is used as a shield by these countries against oil-related risks. According to this article in investopedia, “The amount of money in these SWF is substantial. As of May 2007, the UAE’s fund was worth more than $875 billion. Still, the holdings of such funds remain quite concentrated and seems to follow the 80-20 rule as with the top five funds are accountable for about 70 percent of total assets in SWFs.
What is the future of SWFs?
The future of the SWFs is summarized beautifully by Simon Johnson, the Economic Counsellor and Director of the IMF’s Research Department, in his article, The Rise of Sovereign Wealth Funds. According to this article, “Sovereign wealth funds are major state-owned players of the 21st century. Hedge funds, while becoming more prominent in this century, are in some sense a throwback to the end of the 19th century, when large pools of private capital moved around the world with unregulated ease—and generally contributed to a long global boom, rapid productivity growth around the world, and a fair number of crises. What happens when the 21st-century state meets the 19th-century private sector? The outcome remains to be seen.”
