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Capital &



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This page considers overseas sovereign wealth funds and sovereign investment.

It covers -


As the preceding pages of this note indicate, sovereign investment by national and provincial governments -

  • predates 2007
  • occurs in variety of forms, uses different resources (eg petroleum revenue, tax revenue and privatisation proceeds) and for different purposes
  • may be at an arm's length from the government of the day (typically reflecting the independence of the central bank) or instead operated as a part of government
  • may be driven by commercial advisers of varying honesty and expertise (with Nauru for example dissipating the 'national nest egg')
  • may be restricted to investment within the particular jurisdiction or to particular types of investments.

The following paragraphs illustrate some of those variations.


Norway's national Government Pension Fund (Statens pensjonsfond) has two components: a taxpayer-based fund and the Government Pension Fund~Global. The latter, formerly the Government Petroleum Fund (Statens oljefondet) and often characterised as the prototype resource-based fund, was established in 1990. The expectation was that it would provide a long-term savings mechanism underpinning pension, health and other expenditure on the country's aging population. The Fund would also alleviate 'Dutch disease', ie negative impact of petro-revenue on other parts of the economy through loss of exports because of the rise in the exchange rate resulting from resource sales.

The Fund is managed by a specialist arm of the central bank. Importantly, all investment is offshore: revenue from sale of North Sea oil/gas is contributed to the fund and invested outside Norway, with that capital outflow causing depreciation of the exchange rate and offsetting a rise in the exchange rate resulting from oil exports. There is a statutory cap on transfers from the fund of 4% percent of the capital per year, reflecting the estimated long-term real rate of return on investment.

The fund has been promoted as a tool to ensure transparency in identification and use of Norway's petro-revenue. Investment is subject to ethical guidelines, with the Finance Ministry identifying businesses in which the Fund cannot invest (eg because they are involved in arms manufacture or, famously in the case of WalMart, are considered to engage in human rights abuses). A maximum of 5% of shares in an enterprise may be held by the Fund.

A perspective is provided in Alan Gelb's Oil Windfalls: Blessing or Curse? (Oxford: Oxford Uni Press 1988) and Martin Skancke's 2003 'Fiscal Policy and Petroleum Fund Management in Norway' in Fiscal Policy Formulation & Implementation in Oil-Producing Countries (Washington: International Monetary Fund 2003) edited by Jeffrey Davis, Rolando Assowski & Annalisa Fedelino.


France's national Pensions Reserve Fund (FRR) aims to supplement the public pension system. It was established in 1999 and has been the subject of recurrent criticism regarding complexity, lack of transparency and alleged under-contribution. A more telling criticism has been that the Fund does not represent a successful effort to rationalise the nation's fragmented and inefficient pension schemes.

The Fund draws on contributions from a range of sources, including cash injections (notably through privatisations and 3G network licenses), taxes on private assets, money from savings banks (eg the Caisse des Dépôts et Consignations) and expected surpluses from the Old Age Solidarity Fund and the National Old Age Insurance Fund for Wage Earners. Disbursements, from 2020 onwards, would be made through existing occupational pension schemes. The target is contribution of €4.5 billion per year to reach an aggregate €152 billion in 2020. As of 2004 the Fund had assets of €19.2 billion.

The FRR is governed by a supervisory board (legislators, business and union representatives). The Fund does not have a geographical restriction but is limited to "socially responsible investment", an area of contention with criticisms of dirigisme commenting that there will be a tendency to bail out ailing national champions.


The Kuwait Fund for Future Generations (FFG), formally established in 1976 but variously tracing its history to informal investment from 1953 or 1962 onwards, is managed from London by professional advisers under the supervision of the Kuwait Investment Authority (KIA). The latter is estimated to hold US$200 billion of assets, including major Australian and UK commercial property under the St Martins banner.

As of 1976 it had investments of around US$8 billion, derived from petro revenue and accumulated returns. From 1976 some 10% of all revenue from all government sources must be placed in the fund. It was estimated in 1987 that assets were around US$35 billion. Kuwait is reported to have a strongly diversified portfolio, with substantial equity stakes in public companies in the US and elsewhere, major property holdings (eg in Australia) and investment in hedge funds.

Edwin Truman notes that as of August 2007 the Saudi Arabian Monetary Agency reporting holdings of US$27.0 billion in foreign exchange reserves, US$205.7 billion other international securities on its balance sheet and $51.3 billion in holdings (on behalf of other government entities) that are not on its balance sheet.

     Nauru and Kiribati

Micronesian statelet Nauru drew on royalties from the mining of phosphates (for fertiliser) in establishing the Nauru Phosphate Royalties Trust (aka Long-Term Investment Fund under s 62(1) of the Nauru Constitution) in 1968. That fund is now regarded as the major example of a sovereign wealth fund gone wrong.

Investments reportedly peaked at US$800 million in 1991, adequate to support a then national population of 4,000. Assets included a landmark office tower in Melbourne, a shipping line and an international airline. Large-scale corruption and mismanagement - accompanied by reckless borrowing by the government - saw major erosion of the Fund, with property assets in Australia being sold for $339 million and reported debts of around $240 million. By 2004 earnings from phosphate exports (at that time US$640,000) failed to cover the cost of production and Nauru now depends on foreign aid. The restructured Fund was claimed to have $60 million assets in 2007, supporting a population of 10,000 people.

The Nauru experience is discussed in Investing for Sustainability: The Management of Mineral Wealth (Norwell: Kluwer Academic 2001) by Rognvaldur Hanneson.

A contrast is provided by the Kiribati Revenue Equalisation Fund (RERF), also based on phosphate revenue, and estimated as worth around US$520 million in 2006. It is discussed in Teuea Toatu's 'The Revenue Equalisation Reserve Fund' in Atoll politics: the Republic of Kiribati (Christchurch: Macmillan Brown Centre for Pacific Studies, University of Canterbury 1993) edited by Howard Van Trease.

     New Zealand

The New Zealand Superannuation Fund (NZSF) is intended to underpin the future cost of the national pension system, reflecting aging of New Zealand's population (similar demographics to those in Australia) and restructuring of the country's tax system.

The New Zealand government expects to draw the equivalent of 15 to 20% of the annual cost of superannuation payments beginning around 2025, with the net fiscal impact of the NZSF expected to exceed 30% of payment costs for several decades.

The government expects to provide the Fund with $NZ2.2 billion per year over 20 years, with capital contributions ceasing in 2026. Some contributions may come from further privatisation. As of mid 2004 the Fund's assets were around $NZ4.0 billion, with plans for growth in nominal terms from 2005.

In contrast to Singapore's Temasek and GIC the NZ Fund may not borrow and may not control another entity (in practical terms this limits it to holding no more than 20% of an entity's voting capital).

Investment by the NZSF is undertaken by external fund managers. The Fund is governed by the Guardians of New Zealand Superannuation, a discrete government entity.


The Alaska Permanent Fund was established in 1976 through a constitutional amendment requiring

at least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments.

The Fund is managed by the Alaska Permanent Fund Corporation (AFPC), a state-owned entity supervising external managers, with most spending from the Fund being made through the Permanent Fund Dividend Division (independent of the APFC) as dividends to qualified Alaska residents.

The Fund aims to achieve a real rate of return of 5% per year, with a diversified investment portfolio. As of 2007 publicly-traded shares comprised 53% of the Fund's total market value, bonds were at 29% of value (primarily US bonds), 10% US real estate (industrial, residential, office and retail), 4% in hedge funds and 4% in private equity.


Eire's National Pensions Reserve Fund (NPRF), similar to the New Zealand Fund, is intended to meet part of the costs of social welfare and public service pensions from 2025 onwards.

The national government is required under legislation to contribute 1% of GNP in the NPRF. It may also make additional contributions where circumstances allow. The value of the NPRF as of 2002 was €7.4 billion. The NPRF cannot be drawn on until 2025.

The Fund is free to invest in all classes of asset, other than Irish government bonds.

The Fund is controlled by the National Pensions Reserve Fund Commission, which has discretionary authority to determine and implement an investment strategy "based on commercial principles and subject to prudent risk management". Operation involves the National Treasury Management Authority.


Development of the Singapore economy has featured growth of what, in practice, are now two sovereign funds.

The Government Investment Corporation (GIC), established in 1981, invests internationally in equities, fixed income, money market instruments, real estate and special investments. As of 2006 those assets were estimated at US$100 billion. GIC notes that it manages assets owned by the Government of Singapore (GIC's parent) and the Monetary Authority of Singapore. It has extensive retail property investments in Australia (eg a stake in the $1 billion redevelopment of the landmark Myer site in Melbourne's Bourke Street).

The government also wholly owns Temasek, an unwieldy conglomerate (with assets estimated at over US$100 billion) with substantial offshore holdings that include a controlling stake in Australia's Optus and Thailand's Shin telecommunications and broadcast group. It is promoted as "an Asia investment house headquartered in Singapore". Temasek's chief executive is Ms Ho Ching, wife of prime minister Lee Hsien Loong (son of Singapore's first prime minister Lee Kuan Yew). It announced in November 2007 that it would avoid investing in "iconic" companies, instead taking minority stakes and seeking local partners in making acquisitions.


The Alberta Heritage Savings Trust Fund (AHSTF) was established in 1976 and like the Alaska Permanent Fund drew on mineral royalties (around 80% of oil and gas production occurred on Crown land). The expectation was that returns from the fund would support economic restructuring as the province's non-renewable resources were depleted, would encourage diversification of the economy and would enable "quality of life improvements" that Alberta otherwise could not afford.

The Alberta Heritage Savings Trust Fund Act was passed in 1976, with the fund receiving an initial US$1.5 billion contribution from the government. Investment proved to be controversial, with loans to Alberta Crown corporations ("not necessarily a commercial return" and often indirectly covering shortfalls in government revenues from ailing state owned enterprises), loans to other provincial governments or government agencies at concession-level interest rates through the Canada Investments Division and spending on physical and social infrastructure projects that were to provide long-term social or economic benefits to Albertans without consideration of financial return (notably the Alaska Heritage Foundation for Medical Research, AHFMR). Prior to 1997, when the Fund was restructured, there was little attention to investment for commercial returns in Canadian stocks and money market securities.

From 1976 to 1983 some 30% of the province's non-renewable revenues (mostly oil and natural gas) went into the Heritage Fund. That contribution was then halved and ceased altogether in 1987 with the collapse of world oil prices. Overall contributions were around US$12 billion, with the Fund growing to US$12.7 billion in 1987 (and total income for government by 1998 amounting to US$22 billion). The Fund eroded from 1987 to 1995 as the government drew on capital for funding of social services and other programs.

Restructuring in 1997 saw a new business plan aimed at earning income to support the government's fiscal plan, maximize long-term financial returns through the Endowment portfolio, and improve Albertans' understanding of the fund. The government contributed capital on an irregular basis to offset inflation; the Fund reached C$15.4 billion in late 2006. Assets at that time comprised public equities 45.0%, fixed income securities 30.0%, real estate 10.0%, hedge funds 5.0%, private equity 4.0% and timberland 4.0%.

     UAE and Qatar

The Abu Dhabi Investment Authority (ADIA), invests the Abu Dhabi government's oil and gas revenues, primarily offshore. It is reported as controlling assets of around US$1.3 trillion as of 2007. Dubai International Capital (DIC) with US$80 billion assets was established in 2004 as the international investment arm of Dubai Holding, the conglomerate almost wholly owned by Dubai's ruler. DIC appears to concentrate on industrial investments, complementing the focus on shares and real estate by Dubai Investment Group (DIG).

The Qatar Investment Authority is reported as controlling some US$50 billion assets.


In 2007 Libya announced establishment of a discrete SWF, the Libyan Investment Authority (LIA), consolidating six existing 'extra budgetary funds' financed by petro revenue (the Oil Reserve Fund (ORF), Long-Term Investment Portfolio, Libya Africa Investment Fund (LAIF), the SEDF, Libya Financial Investment Company and Oil Investment Company). As of 2007 Libya's foreign reserves were estimated at US$70 billion; the target for the SWF was US$40 billion.

In 2001 it claimed an offshore investment portfolio of US$8 billion, of which US$6 billion involved stakes in EU businesses - including 5% of Banca di Roma and US$1 billion in UK real estate - and US$1 billion of interests in overseas banks (through the Libyan Arab Foreign Bank). Libya had attracted attention for opportunistic high-profile offshore investment (notably a 9.8% stake in Italy's FIAT conglomerate, later increased to 14% before being sold back to the Agnelli family and associates), for use of revenue on some of the local dictator's zanier projects and for criticisms that much 'investment' was a device for money-laundering by a rogue state and its allies.

     Russia and Kazakhstan

Russia caught the SWF bug in 2007, announcing that in 2008 its US$109 billion Oil Stabilisation Fund (established in 2004) would be split into a Reserve Fund and a Future Generations Fund. The former will be invested like official reserves. The latter would operate as a SWF, initially with with US$30 billion but growing through contribution of some US$40 billion per year from oil and gas revenue.

Income from Kazakhstan's oil-based SWF has been recurrently diverted, consistent with levels of corruption in that autocracy. Concerns are highlighted in Victorovna Progunova's 2006 Transparency, Accountability and Public Participation as Foundations for Effective Operations of Natural Resource Funds: Implications for the Russian Stabilization Fund (PDF)


The Central Huijin Investment Company was established by China's central bank in 2003 with US$67.5 billion of its foreign exchange reserves to recapitalise four state-owned banks. Central Huijin tacitly served as a SWF. In 2007 Beijing established the China Investment Corporation (CIC); it is expected to absorb Central Huijin and China Jianyin Investment with an initial capital of US$200 billion.


The Brunei Investment Agency (BIA) was established in 1983 under the Brunei Investment Agency Act (PDF) after the sultanate withdrew its oil-based investment portfolio from Britain's Crown Agents, traditional custodians for many UK colonies and native rulers. The BIA has invested most assets offshore, consistent with the nation's small population (c380,000).

The Sultan's brother Prince Jefri - finance minister and head of the BIA - established Amedeo Development Corporation as a corporate umbrella for diverse investments. Amedeo collapsed in 1997, with the Sultan subsequently suing his brother in the UK amid claims that between US$20 billion and US$28 billion had been lost or misappropriated. In an out of court settlement Jefri agreed to hand assets worth US$15 billion to the BIA; litigation over fulfilment of that agreement dragged on until 2007. Amedeo was wound up in the Brunei High Court in 1999 with debts of US$3.5 billion.

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