As with so many technical financial investment terms, Sovereign Wealth Funds also cause some confusion to the casual onlooker. This article will attempt to discuss the major points of these funds - known as SWFs for short.
Some fortunate countries around the globe do not actually have any national debt at all. This situation usually means that the state in question actually has a surplus of wealth. In these states, where extra funding for the running of the nation is not needed, this wealth is put into one of their Sovereign Wealth Funds.
Sovereign Wealth Funds may contain various stocks including gold, oil or currencies. By grouping together these stocks, a treasury or government can attempt to keep its wealth safe and protected from the various economic cycles - boom or bust - that may happen.
There has been some criticism of Sovereign Wealth Funds as some countries with a serious national debt situation suggest that Sovereign Wealth Funds are used for political purposes. This allegation has usually been refuted by the states in question. In the current harsh economic climate these massive funds have proved valuable in paying for the various national stimulus packages instigated to help kick start the economies of the world.
There are concerns about the transparency of Sovereign Wealth Funds - that is, what are the investment goals of the fund? Along with this, there may be other details about the size of stocks.
One of the largest Sovereign Wealth Funds in the world is the Abu Dhabi Investment Authority. Investing for Middle Eastern states, which rely heavily on oil reserves of their national stability, has become important in modern times. These states look for ways to diversify by investing in stocks which should provide an income when the oil has run dry.
Another very large Sovereign Investment Fund is the Government Pension Fund of Norway. This fund is based on the huge amount of money that the Norwegian state has made from its oil reserves. With a population of only 4.7 million, Norway is a very rich nation indeed and this pension fund should mean that Norway is one of the few nations that does not have a significant pension fund deficit in the future. Perhaps it’s time to move to Norway! When a country can run its entire nation very comfortably and still manage to put away money which equates to 80000 dollars per person, you know that country is doing rather well.
With the brains and inside knowledge of entire governments, Sovereign Wealth Funds are understandably quite a popular investment option for investors across the globe.
Anna Stenning is an expert on sovereign wealth funds having been involved in selecting stocks and assets for various investors.
