Sovereign Wealth Funds

By: Mike Hewitt | Sat, Jun 30, 2007
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Central banks have traditionally kept their reserves in relatively low-yielding, highly liquid government securities, agency debt, money-market instruments and bank deposits. The most current official IMF figure for official worldwide foreign currency reserves is US$5.89 trillion. At US$1.35 trillion, China holds the world's largest pool of official reserves, followed by Japan with US$911 billion and Russia with US$403 billion.

In addition to these reserves, market estimates for the total value of Sovereign Wealth Funds (SWF) run as high as US$2.5 trillion. This compares to US1.6 trillion for hedge funds. These are state-owned and operated funds, comprising of financial assets such as stocks, bonds, or property not included in the IMF figures. The use of these funds enables large reserve holders to invest in higher yielding instruments.

Top Ten Country Total Reserves Including Sovereign Wealth Funds

These funds fall into one of two major categories: commodity funds or non-commodity funds. Commodity funds are established through commodity exports (either owned or taxed by the government). Commodity based funds are normally from petroleum revenue but not always, as is the case for Chile's US$3.9 billion Copper Stabilization Fund. Non-commodity funds are typically established through transfers of assets from official foreign exchange reserves. Market estimates currently attribute approximately two-thirds of SWFs assets to commodity funds and the remaining one-third to non-commodity funds. The largest SWFs are detalied below.

Country Fund Name Assets (US$bn) Inception Origin
U.A.E. Abu Dhabi Investment Authority 875 1976 Oil
Singapore Government of Singapore Investment Corp 330 1981 Non-Commodity
Norway Government Pension Fund 300 1990 Oil
Saudi Arabia Various 300 N/A Oil
China State Foreign Exchange Corp 300 2007 Non-Commodity
Singapore Temasek Holdings 100 1974 Non-Commodity
Kuwait Kuwait Investment Authority 70 1953 Oil
Australia Australia Future Fund 50 2004 Non-Commodity
USA (Alaska) Permanent Reserve Fund 35 1976 Oil
Russia Oil Stabilisation Fund 32 2003 Oil
Brunei Brunei Investment Agency 30 1983 Oil
South Korea Korea Investment Corporation 20 2006 Non-Commodity
Source: Morgan Stanley, March 2007

These funds enable countries to diversify their portfolios and begin investing outside of US denominated investments. While the U.S. dollar still accounts for the majority of official foreign exchange reserves that dominance has been waning. In the second quarter of 2001 it stood at 56.6% and has since fallen steadily to 42.2%.

Currency Make-Up of Official Foreign Reserves

Published on - Jun 30, 2007.



Mike Hewitt

Author: Mike Hewitt

Mike Hewitt

Mike Hewitt

Mike Hewitt is the editor of, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

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