Globalisation - What are Sovereign Wealth Funds?

In this short video we look at sovereign wealth funds and consider which of them are the largest in the world economy.

SWFs are state-owned investment funds, commonly funded by budget surplus generated from the country’s natural resources or foreign currency reserves.

Norway has the world's largest sovereign wealth fund.

The stated aim of the Norwegian oil fund is to ensure responsible and long-term management of revenue from Norway’s oil and gas resources, so that this wealth benefits both current and future generations. It holds an average of 1.5% of all the world’s listed companies.

The second biggest investment fund is CIC.

China Investment Corporation (CIC) is a sovereign wealth fund that manages part of the People's Republic of China's foreign exchange reserves. It has for example, a stake in Heathrow Airport (London).

What are some of the advantages from having sovereign wealth funds?

1. Investment in assets owned overseas provides a flow of income and lifts a country’s GNI per capita
2. Higher incomes boost government tax revenues
3. Funds can promote economic diversification and help cushion an economy after an external shock
4. Power & influence of a fund might be used to promote environmental & social aims – Norway’s fund now plans to vote against companies that fail to set a net zero emissions target, overpay their top leaders, or do not have sufficiently diverse boards.