Sovereign wealth funds (SWFs) are one of the hottest topics in global financial markets now, investing about $75 billion (Rs2.95 trillion) in companies ranging from Citigroup Inc. to Daimler AG.The BV SWF Risk Index, created by Breakingviews.com, ranks the prominent funds according to the potential risk they present to Western interests. It scores each fund from one to five on transparency, strategic control and political threat.
Part II of the special column on SWFs discusses the specifics of the top 20 funds in the index.
Illustration: Jayachandran/ MINT
China Investment Corp. (China)
Reported size: $200 billion
Launched in September, this new funnel for China’s vast foreign exchange reserves says it is considering making available full details of its activities and investment processes. But so far, it has only produced a brochure that sheds little light on how the fund operates. So for now, it scores four for lack of transparency, while its acquisition of large positions in semi-strategic sectors, such as its 10% stakes in Blackstone Group LP and Morgan Stanley, earns it three points for strategic control.
Meanwhile, China is a Communist-controlled, one-party state that remains a potential strategic rival to Western interests, so scores four points for political threat.
Qatar Investment Authority (QIA) (Qatar)
Estimated size: $60 billion
Two years in existence, QIA is funded by the emirate’s huge gas reserves and its chairman is ruler Sheikh Hamad Al Thani. It is extremely secretive, as yet providing no reports on its activities, and its acquisition of a 20% stake in London Stock Exchange Plc. and $20 billion pursuit of UK retailer Sainsbury’s Supermarkets Ltd show it is not afraid of pursuing large high-profile targets. On that basis, it scores four points each for transparency and strategic control. But as a key regional ally of the US, albeit an autocracy in a volatile region, it picks up only two points for political threat.
National Development Fund (Venezuela)
Estimated size: $17.5 billion
Venezuela isn’t a common name on the SWF scene. Its two-year-old fund gets its money from national oil companies and its official role is to “maintain a reserve in case of disasters.”
To date, it is believed to have been used to fund domestic infrastructure projects and while a proportion of its money is believed to be outside the country, it isn’t known to have made any headline foreign investments.
But its low score for strategic control is offset by five points for lack of transparency and three for the political hostility of socialist president Hugo Chavez
Abu Dhabi Investment Authority (UAE)
Estimated size: $875 billion
The largest of the SWFs is also the most secretive—in its 30-year history it has never disclosed its size, and is chaired by Sheikh Khalifa, the emirate’s ruler. That ensures it gets four points for transparency, while its recent acquisition of large stakes in Citigroup and US private equity group Apollo Group Inc. earns it three points for strategic control. It is widely believed to have close ties to state-owned Mubadala Development Corp., which last year bought a 7.5% stake in Carlyle Group.
State General Reserve Fund (Oman)
Estimated size: $6 billion
Very little is known about Oman’s 27-year-old sovereign wealth fund—as such, it gets maximum points for lack of transparency. But its virtually non-existent international profile suggests it deserves no more than two points for strategic control. The Gulf Sultanate is a Western ally and poses little threat to Western economic and political interests.
National Fund (Kazakhstan)
Reported size: $14.9 billion
Kazakhstan’s National Fund is unusual in that while it provides a reasonable level of disclosure about finances, it trips itself up over its undisclosed investment criteria. However, keeping a relatively low international profile helps it score a two for strategic control. The ex-Soviet state is far from a functioning democracy and still maintains links with Russia as well as the US, so scores three for political threat.
Stabilization Fund (Russia)
Reported size: $128 billion
Russia’s oil-backed fund is not as scary as one might expect. Escalating tensions with Europe and the US guarantee it four points for political threat. But it scores well for transparency and strategy.
Despite being controlled by the ministry of finance, it adheres to a strict policy, investing solely in debt securities from the US and selected European countries. It has reportedly scrapped plans to diversify into equities—a move that would have earned it a higher score.
Brunei Investment Agency (BIA) (Brunei)
Reported size: $30 billion
BIA is part of Brunei’s ministry of finance. Established in 1983, the group is thought to be worth one-third what it once was after alleged mismanagement in the 1990s. Little is known about the group, but it is understood to be trying slowly to rebuild itself. Its last known purchase was $111 million for a stake in Jordan Phosphate Mines Co. It scores four points for lack of transparency and two each for strategic control and political threat.
Economic and Social Stabilization Fund (Chile)
Estimated size: $9.7 billion
Chile launched its official SWF just two years ago, but pooled the assets from its Copper Stabilization Fund—in existence since 1985. Despite its long history, virtually nothing is known about its investment criteria, earning it four points for lack of transparency. The proceeds are used to help government funding in social areas like housing and education. While most of its investments are thought to be abroad, the fund has kept a low profile and posts low scores for strategic control and political threat.
Kuwait Investment Authority (KIA) (Kuwait)
Estimated size: $213 billion
Kuwait’s large oil-backed SWF launched in 1953 is the oldest of the bunch, yet it lags on good governance. KIA has close ties to the state—its board includes the oil minister and the finance ministry. And its claim to hold itself to performance standards comparable with large pension funds worldwide cannot be verified as domestic law prevents it revealing detailed information. That earns it three points for lack of transparency. Kuwait has ploughed a total of $5 billion into Citigroup and Merrill Lynch and Co. Inc. and holds a long-term 7% stake in German car maker Daimler —but the stakes are just small enough to garner two points for strategic control.
National Stabilization Fund (Taiwan)
Estimated size: $15.2 billion
Taiwan’s domestic fund is run by the finance minister and its key objective appears to be propping up the home market. Funds can be used when share prices fall over a significant period of time, when foreign investors try to manipulate the market and domestic or foreign events threaten market stability. Its internal non-threatening focus means it gets only one point for strategic control. But it gets four points for lack of transparency: secrecy is such that fund managers may be imprisoned for leaking information.
Estimated size: $8 billion
Dubai’s largest fund is backed by ruler Sheikh Mohammed and, although relatively small, is not shy of the world stage. Its stated financial strategy includes supporting Dubai’s ambitions to become a global business hub. Yet, its investments, which include a 10% stake in Perella WeinbergPartners Lp. and a 3% stake in Standard Chartered Plc., are not particularly controversial. The fund doesn’t provide financial reports. It scores three points for transparency and two each for strategic control and political threat.
Govt of Singapore Investment Corp. (GIC)
Estimated size: $330 billion
The largest of Singapore’s funds is also the largest SWF that doesn’t get its money from oil and gas exports. Singapore’s high savings rate has given the country money to spare. The group is open about its structure, but does not publish detailed financial reports. It manages part of the country’s pension fund and has minimum return targets.
Over the last 25 years, it has achieved an average 9.5% return in dollar terms. Traditionally a low profile real estate investor, it has recently taken an active role in Wall Street bank capital-raising. GIC has invested $11 billion in Swiss UBS AG and almost a further $7 billion in Citigroup. That guarantees it three points for strategic control, but it scores two points for transparency and just one for political threat.
Temasek Holdings Pte Ltd (Singapore)
Reported size: $108 billion
Singapore’s second largest SWF is the most aggressive—but also the most established and respected—SWF investing in the financial sector. It is fairly transparent and designed to be independent of the state. Its chief executive is Ho Ching, the prime minister’s wife. It scores two for transparency. With a 17% stake in Standard Chartered Bank and a 10% holding in Merrill Lynch, it scores three for strategic control.
Dubai International Capital (DIC) (Dubai)
Estimated size: $12 billion
DIC claims it is a private investment vehicle and not an SWF, but it is run on behalf of the ruling family. Its strategy is to achieve above average risk adjusted returns, which act as a catalyst for Dubai’s economic growth, suggesting political as well as financial returns. It does not provide full reports. Investments include a 10% stake in Och-Ziff Capital Management Group Llc. and a less than 1% in HSBC Plc. Last July, it purchased a passive 3% in Franco-German aerospace defence group EADS NV. It scores two points in each category.
Korea Investment Corp. (KIC) (Korea)
Estimated size: $20 billion
KIC is designed to be run independently of the government. Its initial capital is still being invested, but is expected to soon grow a further six-fold.
It has minimum return targets and plans to disclose financial statements, as well as medium-long term investment strategies. KIC invested an unspecified amount into Merrill Lynch as part of the bank’s second-round capital raising, earning it two risk points for strategy. Although a democracy and ally of the US, it gets the same score for political risk to reflect ongoing tensions with its northern neighbour.
Khazanah Nasional (Malaysia)
Reported size: $17.9 billion
Malaysia’s sovereign fund invests abroad with the goal of “nation building.” Despite a relatively high level of transparency in its annual reports, its closeness to the government—the fund is chaired by the prime minister—means it picks up three points for lack of independence. Khazanah is primarily a utilities, media and infrastructure investor, with the majority of its foreign investment targeting neighbouring Indonesia. The fund is yet to make headline grabbing investments in the West, so it scores well in terms of strategy, as it does for political risk.
Alberta Heritage Savings Trust Fund (Canada)
Reported size: $16.4 billion
Alberta’s sovereign wealth fund scores the lowest possible one point in each category in the index. Focused on achieving the highest financial returns for Alberta’s citizens, it only makes investments under a “prudent person rule.” It provides quarterly and annual reports, as well as a breakdown of its target portfolio allocation. Alberta has no evidence of a threatening investment history, and is a welcome investor in the West.
Permanent Reserve Fund (Alaska)
Reported size: $40 billion
Score size: 3/15
The Alaskan oil fund is largely run by external managers and issues annual public reports. Launched in 1976, it has investments in a globally diversified portfolio of blue-chip equities, bonds and real estate.
The fund has a clear investment strategy targeting an average return of 5% after inflation over 10-year periods. The fund makes annual dividend payments to Alaskan citizens. Dividends are calculated on the fund’s average realized income over five years. It scores one point in each category.
Government Pension Fund Global (Norway)
Reported size: $322 billion
Norway is seen as the gold standard of pure sovereign wealth funds. Its petro-wealth has been stashed away for future pension payments, and the fund—independently managed by Norges Bank—offers the highest level of disclosure. Its portfolio is made up of roughly 40% in bonds and 60% in equities. Its strategy is uncontroversial. The majority of its stakes are below 1% and it actively avoids taking strategic investments. Norway is a fully democratic nation.