What is a sovereign wealth fund?

The

Fund of Sovereign Wealth is an investment account of a nation that consists of excess funds, but separate from reserves that the nation maintains for the purposes of fiscal proceedings. Although the name "Sovereign Fund of Wealth" was first used in 2005, the means themselves existed since the mid -20th century. The first such fund, the Kuwait investment fund, started in 1953, before this nation reached its independence from the UK. The determining factors whether the nation has a sovereign fund of wealth is whether it has excessive cash and political will to save them.

While most of the sovereign funds of wealth are created as a result of excess budget, it can come from different sources. For example, Kuwait has begun excessive income from the state of its own oil drilling enterprise. When the nation faces excessive cash, it has a number of options in terms of its disposition, but these possibilities will basically decrease to expenses or savings. Expenditure can have many forms such as capital or trafficExpenditure, repayment of debt or distribution between taxpayers. Although expenditures are politically popular, it can sometimes be fiscal irresponsible. For example, nations whose economies depend largely on the export of raw materials are reasonable to create a reserve against the falling market. Others can set up a sovereign wealth fund for a specific purpose, such as the Norwegian government pension fund.

Funds of sovereign wealth are invested, sometimes as a hedge against the usual source of nation's income. For example, the United Arab Emirates Fund (SAE), launched in 1976, was financed by excess revenues from oil operations. Part of its portfolio is devoted to various investments other than oil, as a hedge against the uncertain future in this market. However, the funds of sovereign wealth are not immune to dubious investment, and several lost values ​​in the mortgage debacle at the beginning of the 21st century.

Funds of sovereign wealth are for many reasons of immense strategic importance. For example, a rogue nation with a large sovereign wealth fund could use it to destabilize markets. Any nation could use its sovereign wealth fund to protect or develop their own strategic interests, such as the accumulation of currency or debt from some countries to endanger their financial integrity or the ability to defend themselves. Many nations expressing concerns about this powers of sovereign funds of wealth have adopted legislation limiting foreign investment or required official approval of foreign ownership of domestic companies over a certain percentage.

Although some of the sovereign wealth funds are maintained as separate entities, others are operated by the central banks of their nations in their overall economic management strategy. Funds held and administered way is usually significant and significant losses for the fund as if runningHEM credit crisis at the beginning of the 21st century may have an impact on the nation's economy. However, when the fund is operated as a separate entity as an investment fund, the impact of the fund's performance on the national economy will be reduced.