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Sovereign Wealth Fund

   Also found in: Acronyms, Encyclopedia, Wikipedia 0.01 sec.
Sovereign Wealth Fund (SWF)
Funds owned by sovereign nations that invest the savings of an entire state, foreign exchange reserves, or excess liquidity.

Sovereign Wealth Fund
A government-owned company that invests that government's excess reserves. That is, if a country has a current account surplus or a positive balance of trade the government may deposit the excess funds into a sovereign wealth fund. The funds are invested in securities, companies, or projects in order to increase the government's net worth. Often a sovereign wealth fund pays for a government's social programs such as welfare or a state pension. The funds in a sovereign wealth fund are kept separate from the country's regular currency reserves. Sovereign wealth funds are common in oil-rich countries where the government owns a significant portion of the oil production facilities.

Sovereign wealth fund (SWF). A sovereign wealth fund (SWF) is a government-owned enterprise that invests a portion of its country's foreign-exchange reserves in global financial markets.

These reserves consist of a balance of payments surplus, also called a current account surplus, that are created because the payments received in overseas currencies for the country's exports, such as natural resources or manufactured goods, exceed what its residents are paying for imports.

Unlike the traditional overseas investments that governments make to ensure liquidity, such as the purchase of US Treasury securities, SWF assets are separate from official reserves and are typically invested in the private sector to produce higher returns.

SWFs are controversial, in part because their investment strategies, portfolio holdings, and returns are generally secret and in part because of the concern that the sponsoring countries could exert substantial economic pressure on the companies and countries where they invest.



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Although the lessons of the financial crisis will lead many countries to build an even larger cushion of reserves, the desire to diversify and invest part of these means that the rise of the sovereign wealth fund will resume," Francis Small, Global Sovereign Wealth Fund Leader at Ernst & Young said in the release.
KCIC was established in 2005 with a capital of $278 million, half of which were raised by a private placement while the other half was raised by 23 founding shareholders, such as, the Kuwait Investment Authority - the Sovereign Wealth Fund of Kuwait, National Investment Company - one of the leading investment banks in the Middle East, and Al Ghanim Industries - one of the largest conglomerates in the Middle East.
5m a year as a consultant for US investment bank J P Morgan, a further pounds 2m a year to advise the financial firm Zurich, and an unknown fee to advise Mubadala, the sovereign wealth fund which invests Abu Dhabi's vast oil profits.
 
 
 
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