An Introduction To The Mysterious World Of Sovereign Wealth Funds - by Richard Wilson

Sovereign wealth funds have attracted a lot of attention in recent years as more countries open funds and invest in big-name companies and assets. Some experts estimate that all sovereign wealth funds combined to hold more than $5 trillion in assets in 2012, a number that is expected to grow relatively quickly. This has given way to a wide concern over the influence these funds have on the global economy. As such, it is important to understand exactly what sovereign wealth funds are and how they first came about.

A sovereign wealth fund is a state-owned pool of money that is invested in various financial assets. The money typically comes from a nation's budgetary surplus. When a nation has excess money, it uses a sovereign wealth fund as a way to funnel it into investments rather than simply keeping it in the central bank or channeling it back into the economy.

The motives for establishing a sovereign wealth fund vary by country. For example, the United Arab Emirates generates a large portion of its revenue from exporting oil and needs a way to protect the surplus reserves from oil-based risk, thus it places a portion of that money in a sovereign wealth fund. Many nations use sovereign wealth funds as a way to accrue profit for the benefit of the nation's economy and its citizens.

Sovereign wealth funds represent a large and growing portion of the global economy. The size and potential impact that these funds could have on international trade has led to considerable opposition, and the criticism has mounted after controversial investments in the United States and Europe. Following the mortgage crisis of 2006-2008, sovereign wealth funds helped rescue struggling Western banks CitiGroup, Merrill Lynch, UBS and Morgan Stanley. This led critics to worry that foreign nations were gaining too much control over domestic financial institutions, and that these nations could use that control for political reasons. This fear could also lead to investment protectionism, potentially damaging the global economy by restricting valuable investment dollars.

In the United States and Europe, many financial and political leaders have stressed the importance of monitoring and possibly regulating sovereign wealth funds. Many political leaders assert that sovereign wealth funds pose a threat to national security and their lack of transparency has fueled this controversy. The United States addressed this concern by passing the Foreign Investment and National Security Act of 2007, which established greater scrutiny when a foreign government or government-owned entity attempts to purchase a U.S. asset.

Western powers have been guarded about allowing sovereign wealth funds to invest and have asked for improved transparency.

The top five largest SWF by assets (data as of February 2008)

1. Abu Dhabi Investment Authority (UAE) - $875 billion
2. Norway Government Pension Fund (Global) - $380 billion
3. Government of Singapore Investment Corporation - $330 billion
4. Saudi Arabia 1 (no official fund name) - $300 billion
5. State Administration of Foreign Exchange (China) - $300 billion

There are genuine geopolitical concerns about what a large sovereign wealth fund could do to a potential adversary nation. Imagine what several hundred billion non-regulated dollars in concentrated wealth could do - under a malicious hand, it could perform a hostile takeover of strategic financial, industrial or infrastructure assets. It could also erode a nation's currency in the foreign exchange markets. In a worst-case scenario, a sovereign wealth fund is a large pool of hidden assets, with no shareholders (or regulations), which could be ruled by a dictator.

Read more: An Introduction To Sovereign Wealth Funds | Benzinga

Norway euro 457.134 bn wealth fund to cut European exposure

Norway's euro 457.134 (US $610 billion) sovereign wealth fund, Europe's biggest equity investor, plans to sharply reduce its European exposure while raising investments in emerging markets and Asia-Pacific, the finance ministry said on Friday.

Of its entire bond, fixed income and real estate portfolio, European investments will be "gradually" reduced to 41 percent from 54 percent, while Asia-Pacific's share will rise to 19 percent from 11 percent, Finance Minister Sigbjoern Johnsen told a news conference. "We're reducing our European exposure because we see that economic development in the global economy is changing and this should also be reflected in our investment strategy," Johnsen said. "Most likely we'll have to sell some assets in Europe."

As a result, the share of emerging markets in the fund's total portfolio will rise to 10 percent from 6 percent and the share of the Americas and Africa will rise to 40 percent from 35 percent.
"It is just not possible to say how long this will take, it should be gradual and taking into account market circumstances," ministry State Secretary Hilde Singsaas said.

For more: Norway $610bn wealth fund to cut Europe exposure

Business Standard: Norway fund to invest $2 bn in Indian stocks

For the complete report from the Business Standard click on this link

Norway fund to invest $2 bn in Indian stocks

Norway fund to invest $2 bn in Indian stocks

Even as foreign institutional investors rapidly pull out their money from Dalal Street, Norway’s sovereign wealth fund, the world’s second largest, is set to invest $2 billion in Indian stocks.The Bombay Stock Exchange’s benchmark Sensex has been in a free fall this year, dipping below 10,000 last week, but the Norwegian government said the investments by the Government Pension Fund would take place between this month and January 2009.

The Norwegian Pension Fund, which has assets of EURO 273 billion, is the world’s largest sovereign wealth fund after only the Abu Dhabi Investment Authority, credited with assets of over EURO 682 billion.