How do sovereign wealth funds work?

Sovereign wealth funds, or SWFs for short, are state-owned investment funds that are frequently funded by a country’s budgetary surpluses. There are a number of different types of sovereign wealth funds, including stabilization funds, savings generation funds, and strategic development funds. Their purpose frequently depends on the type of fund in question.

What is the purpose of a sovereign wealth fund?

The purposes of sovereign wealth funds are varied. Some are designed to stimulate and strategically develop certain areas of industry of interest to a particular country. For example, a country may choose to invest in domestic tech companies in an attempt to stimulate its high-tech industry. Other funds are designed to provide monetary stability through times of economic hardship.

Are sovereign wealth funds regulated?

In a manner of speaking, yes. Sovereign wealth funds are creations of statute and regulation and are, therefore, regulated. However, since the funds are owned by the nation, and the nation can, at any time, change the regulations and legislation that govern the behavior of the fund, it would be disingenuous to claim that sovereign wealth funds are regulated in the traditional sense of the term.