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Norwegian and Other Sovereign Wealth Funds

Submitted by on November 12, 2012 – 6:42 pm |  
Al Arabiya News recently announced that Norway just surpassed Abu Dhabi in possessing the world’s richest sovereign wealth fund, reporting that “Norway’s Government Pension Fund stood strong at $656.2 billion in October while Abu Dhabi Investment Authority’s assets held a total of $627 billion.” The claim is somewhat misleading, however, in that Abu Dhabi is not a sovereign state, but rather a constituent part of the United Arab Emirates. If the UAE’s other sovereign wealthy funds are included, the country as a whole still outranks Norway. According to the Wikipedia, however, China surpasses both countries by a healthy margin, with sovereign wealth funds valued at 1,189.4 billion U.S. dollars, which does not even include the $293.3 billion sovereign wealth fund held by Hong Kong.

As the Wikipedia explains, a sovereign wealth fund is:

[A] state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally. Most SWFs are funded by foreign exchange assets.

Although “sovereign wealth funds” are by definition held by states, they need not be held by sovereign states, as the Abu Dhabi and Hong Kong examples show. The considerable sovereign wealth funds of the United States are all held by constituent states. Examples here include the Alaska Permanent Fund, the Texas Permanent School Fund, and the Alabama Trust Fund. Such funds, as is the case across much of the world, derive largely from royalties derived from fossil fuel exploitation.

On a per capita basis, Norway and the UAE are in a league of their own as far as sovereign wealth funds are concerned.  The gargantuan Government Pension Fund of Norway (which is actually two separate funds) generates controversy. Some critics contend that more of the state revenue extracted from country’s oil business should be used to support the national budget, whereas others think that some of the investments made by fund managers are too risky or not adequately ethical. The fund’s Advisory Council on Ethics, however, has disinvested from a large number of firms. Most of the excluded firms were placed on the list for dealing in tobacco.

In recent month’s Norway’s sovereign wealth fund has been moving assets out of European bonds and into other areas, including London real estate. As the Wall Street Journal recently reported:

The fund cut holdings of French and Spanish debt in the July-September period and stocked up on U.S. and Japanese government bonds, NBIM said. It also bought currencies of emerging-market nations including South Korea, Russia and Mexico.

 

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