United States President Donald Trump signed an executive order directing the US Treasury and the Department of Commerce to create a Sovereign Wealth Fund (SWF) for America, reported multiple news agencies.
Media reports also state that the US, running on a Budget deficit can pool in money for its aim of creating a Sovereign Wealth Fund from its government assets or from the revenues generated from the tariffs. President Donald Trump has not indicated any range for the size of such a fund.
What is a Sovereign Wealth Fund?
A Sovereign Wealth Fund (SWF) is a state-owned fund created by pooling government money to invest in the benefits needed by the nation, the economy, and the people.
Any government can create a sovereign wealth fund by pooling money from sources like surplus reserves, excess natural resources revenues, surplus trade reserves, banking reserves, excess budget, and privatization money, among other sources of the nation's revenues.
These funds are then generally used for a targeted purpose like infrastructure development, national benefit, etc., and similar to any form of investment, it will have its own objectives, terms and conditions, risk tolerance bands, liquidity concerns, etc.
As per the object of the fund or the investment asset classes, the SWFs can be classified from very conservative funds to high-risk funds. Countries can create or dissolve SWFs to match the investment strategy and the needs of the nation.
Types of Sovereign Wealth Fund
Sovereign Wealth Funds are traditionally classified into funds like — Stabilization funds, savings or future generation funds, public benefit pension reserve funds, reserve investment funds, Strategic Development Sovereign Wealth Funds, industry-targeted funds, and foreign currency reserve assets are the most common types of SWFs.
Usually in these type of SWFs the investment amount is very high due to the massive scale of needs of a nation.
Other SWFs in this world
There are many countries like Norway, China, Abu Dhabi, Kuwait, Saudi Arabia, Qatar, etc. that have their own Sovereign Wealth Funds, which help these countries invest in both domestic and foreign asset classes worldwide.
Here are top five sovereign wealth funds in the world:
1. Norway Government Pension Fund Global with total assets of $1.7 trillion.
2. China Investment Corp., with total assets of $1.3 trillion.
3. SAFE Investment Co. Ltd (China) with total assets of $1.09 trillion.
4. Abu Dhabi Investment Authority with total assets of $1.05 trillion.
5. Kuwait Investment Authority with total assets of $1.02 trillion.
Other SWFs, such as Publis Investment Fund (Middle East), GIC Private Limited (Singapore), Badan Pengelola Investasi Daya Anagata Nusantara (Indonesia), and Qatar Investment Authority, are among the most popular, according to data collected from the Sovereign Wealth Fund Institute rankings list.
