In the news: a few weeks ago, the media focused on the Libyan sovereign wealth fund LBI (Libyan Investment Authority) after the « abrupt » dismissal of its director.
Sovereign wealth funds are long-term public investment funds. Public funds mean public resources, and while the total assets managed by sovereign wealth funds currently stand at over $5 trillion according to the SWF Institute (equivalent to less than 10% of the funds managed by institutional investors) compared to around $3 trillion in 2007, this is because the organizations financing them have seen their resources increase significantly in recent decades. Why is this?
There are two types of countries with substantial sovereign wealth funds: those that derive significant revenues from raw materials (Norway, Qatar, Saudi Arabia, etc.), and those that accumulate large surpluses due, to put it simply, to the « dynamism of their manufacturing trade » (China, Asian Tigers). In the second case, recurring surpluses lead to an increase in the foreign exchange reserves of the country in question, and rather than investing all of these reserves in short-term Treasury bills, countries find it advantageous to allocate part of these reserves to long-term investments via a sovereign wealth fund. The boom in commodity prices on the one hand, and the growing accumulation of foreign exchange reserves by emerging countries on the other, are the two main factors that have contributed to the rise of sovereign wealth funds in recent decades.
Julien P.
