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June 30, 2007

Sovereign Wealth Funds
by Mike Hewitt

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%.

Published on http://dollardaze.org/ - Jun 30, 2007.

Mike Hewitt
DollarDaze.org

Mike Hewitt is the editor of www.DollarDaze.org, 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.