Sovereign Wealth Funds (SWFs) are a much discussed topic today among international economists, central bankers, policy-makers and politicians. SWFs have come a long way in the past five decades. In 1953, eight years before its independence from the UK, Kuwait established the Kuwait Investment Board to invest its surplus oil revenue. That was perhaps the first-ever SWF, although the term did not exist then. Today, SWFs are growing rapidly in both number and size. Twelve SWFs have been established since 2005, and altogether SWFs control an amount of roughly $2.5 tn. And this figure is growing, according to some estimates, by $1 tn a year.
Although SWFs make up only 2% of the world's $165-tn worth of traded securities, they are bigger players than private equity and hedge funds, two entities which have also grabbed the headlines in recent years. According to Simon Johnson, IMF's Chief Economist, SWFs will be worth $10 tn by 2012.
Trading
nations, which save more than they spend, accumulate current
account surpluses over time. Once these surpluses cross
a threshold amount, managing them becomes a key issue. Various
entities may be involved in managing these surpluses. These
include central banks, official investment companies, state
pension funds and sovereign oil funds, among others. |
