A sovereign wealth fund (SWF) is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity or hedge funds. SWFs are commonly established from surpluses, payments, and exports, and are used for a variety of purposes, such as stabilizing a countrys economy, saving for future generations, or promoting national economic or development goals. Some countries have SWFs that can be similar to venture capital for the private sector.
SWFs can be derived from a variety of sources, including balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments, fiscal surpluses, and/or receipts resulting from resource exports. Acceptable investments in each SWF vary from fund to fund and country to country, and their risk management can range from very conservative to a high tolerance for risk.
It is important to note that the term "sovereign wealth fund" is used to refer to a widely diverse group of state investment vehicles, and the exact number of SWFs depends on the definition. In some discussions of state-managed wealth, a focus on SWFs is too narrow, as the vast majority of sovereign assets in Asia are held in central banks rather than by diversified SWFs.
Overall, SWFs are significant and sometimes controversial players in global capital markets, and have raised concerns about their potential influence in financial markets and their possible political motives. However, defenders view them as responsible and sophisticated investors, bringing a variety of benefits to financial markets.
