- Economic Terms
Where the World's Richest Countries Invest
ByKimberly Amadeo
Updated on April 27, 2022
Reviewed by
Robert C. Kelly
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Reviewed byRobert C. Kelly
Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.
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A sovereign wealth fund is an investment pool of foreign currencyreserves owned by a government. The largest investment pools are owned by countries that have a trade surplus, such as China and oil-exporting countries. They take in foreign currencies, primarily U.S. dollars,in exchange for their exports. Thefunds are then invested to produce the highestreturn possible.
Sovereign Wealth Funds vs. Central Banks
Before getting into more detail about sovereign wealth funds, it's important to distinguish between sovereign wealth funds and similar—but different—financial entities. Similar funds held by nations'central banksare not sovereign wealth funds because they have different goals. A central bankholds funds to manage the value of its currency, to stimulate the economy, or to prevent inflation. A sovereign wealth fund just wants to earn a high return.
Here are some other funds that may be confused with sovereign wealth funds:
- Funds held by state-owned companies
- Government employee pension funds
- Private wealth funds
How Sovereign Wealth Funds Affect the U.S. Economy
The amount of money held by the largest sovereign wealth funds has more than doubled since September 2007, from $3.265 trillion to$9.1 trillion in 2021. Their asset holdings are now double that of allhedge fundscombined.
These funds are big enough to affect overall markets. For example, they took large stakes in Citigroup, Morgan Stanley, and Merrill Lynch during the financial crisis. They contributed toasset bubblesin London and New York real estate. These funds have increasing influence as investors become more sophisticated.
Sovereign Wealth Fund Ranking
Norway's Government Pension Fund is the largest, according to the Sovereign Wealth Fund Institute.As of August 2021, it held nearly $1.1 trillion.Its profits are from the state-owned North Sea oil-drilling operation, making it susceptible to drops in oil prices.
Note
High oil pricesspurred the growth of large wealth funds between 2007 and 2014. During that time, nearly 60%of their assets were from oil and gas revenues. The2008 financial crisisbarely slowed their growth.
Middle Eastern Funds
Middle Eastern economies also rely heavily on oil exports. They make up about a third of the total wealth insovereign funds.
| Top 10 Middle Eastern Funds (in billions) | Country | 2021 |
|---|---|---|
| Norway Government Pension Fund Global | Norway | $1,364 |
| China Investment Corp. | China | $1,222 |
| Kuwait Investment Authority | Kuwait | $693 |
| Abu Dhabi Investment Authority | UAE | $649 |
| Hong Kong Monetary Authority | Hong Kong | $580 |
| GIC | Singapore | $545 |
| Temasek Holdings | Singapore | $484 |
| National Council for Social Security | China | $447 |
| Public Investment Fund | Saudi Arabia | $430 |
| Investment Corp. of Dubai | UAE | $422 |
Chinese Funds
China benefits from a massive export economy that collects largeholdings of foreign currencythat need to be invested. Export-funded sovereign wealth funds occur in several countries, but the best example may be inChina, where there are five sovereign wealth funds. Combined, these funds invest trillions of dollars. China's central bank manages the rest of the government's funds to regulate its currency. State-run corporations and banks invest in these wealth funds as well.Each fund hasseparate goals.
- China Investment Corp: This fund boasts just over $1.2 trillion in assets. As of 2021, roughly 42.5% of this fund's portfolio was made up of "alternative assets" including real estate, infrastructure, and hedge fund investments
- SAFE Investment Company: This fund, with roughly $417 billion in assets under management, incorporates three investment entities based overseas. They include the Investment Company of the People’s Republic of China in Singapore, Gingko Tree in the UK, and Beryl Datura in the British Virgin Islands.
- Hong Kong Monetary Authority: With more than $580 billion in assets, this fund invests in the Hang Seng stock market and supports the financial stability of Hong Kong
- China's National Social Security Fund: This fund currently manages $447 billion in assets. It manages funds recovered from state-owned businesses and other government investment proceeds. It invests mostly in China.
- China-Africa Development Fund: This fund manages $5 billion worth of assets, all of which are intended to "promote the development of Sino-African commercial ties."
Singapore
The city-state of Singapore has two wealth funds, holdingmore than $800billion in total. The funds come from the high savings and investment rates of the people and businesses in this world-class financial center.
The largest is the Government of Singapore Investment Corporation, now theGIC Private Limitedfund. It holds $545 billion. It'sowned and funded by the government. It’s subdivided into three smaller enterprises:
- GIC Asset Management: It invests in equities, bonds, foreign exchange, and alternative investments.
- GIC Real Estate: This fund holds properties around the world, as well as investments inREITs.
- GIC Special Investments Private Limited: This isone of the world's largestprivate equity firms. It invests in leveraged buyouts, venturecapital, and infrastructure.
Singapore's other wealth fund isTemasek. It invests $484 billionthrough 120 subsidiaries. It focuses on investments inAsia and energy-related investments. It purchases stocks instead of direct investments.Temasek opened a New York-based office in 2013.Analysts expectedthat the new Temasek office would come with a change its strategy—from owning small stakes in blue-chip, publicly-listed companies, to major direct investments.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Sovereign Wealth Fund Institute. "Top 100 Largest Sovereign Wealth Fund Rankings by Total Assets."
Sovereign Wealth Fund Institute. "China Investment Corporation (CIC)." September 18, 2021.
China Investment Corporation. "Portfolio Structure." Nov. 18, 2019.
Sovereign Wealth Fund Institute. "SAFE Investment Company Limited (SAFE Investment Company." September 18, 2021.
Sovereign Wealth Fund Institute. "The Exchange Fund of the Hong Kong Special Administrative Region (HKMA IP)." September 18, 2021.
Sovereign Wealth Fund Institute. "National Council for Social Security Fund of the People's Republic of China (NSSF)." September 18, 2021.
National Council for Social Security Fund. "About the National Council for Social Security Fund." Nov. 18, 2019.
Sovereign Wealth Fund Institute. "China-Africa Development Fund (CAD Fund)." September 18, 2021.
China-Africa Development Fund. "Investment Philosophy." September 18, 2021.
Sovereign Wealth Fund Institute. "GIC Private Limited (GIC)." September 18, 2021.
Sovereign Wealth Fund Institute. "Temasek Holdings (Temasek)." September 18, 2021.
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Economic Terms Where the World's Richest Countries Invest
The article "Economic Terms Where the World's Richest Countries Invest" by Kimberly Amadeo provides valuable insights into sovereign wealth funds and their impact on the global economy. It discusses the concept of sovereign wealth funds, their significance in the investment landscape, and the specific examples of countries and regions with substantial sovereign wealth fund holdings.
Sovereign Wealth Funds A sovereign wealth fund is an investment pool of foreign currency reserves owned by a government. These funds are primarily owned by countries with trade surpluses, such as China and oil-exporting countries. The article emphasizes that the primary goal of sovereign wealth funds is to produce the highest return possible [[1]].
Sovereign Wealth Funds vs. Central Banks The article distinguishes sovereign wealth funds from similar financial entities, such as funds held by central banks, government employee pension funds, and private wealth funds. It explains that central banks hold funds to manage the value of their currency, stimulate the economy, or prevent inflation, while sovereign wealth funds focus on earning high returns [[1]].
Impact on the U.S. Economy The article highlights the significant impact of sovereign wealth funds on the U.S. economy. It notes that the largest sovereign wealth funds have more than doubled in size since September 2007, reaching $9.1 trillion in 2021. These funds have the potential to influence overall markets and have made substantial investments in major financial institutions and real estate, contributing to asset bubbles in certain regions [[1]].
Sovereign Wealth Fund Ranking The article provides insights into the ranking of sovereign wealth funds, with a specific focus on the Norway Government Pension Fund as the largest fund. It emphasizes the fund's susceptibility to fluctuations in oil prices due to its profits from the state-owned North Sea oil-drilling operation. Additionally, it discusses the significant role of oil and gas revenues in the growth of large wealth funds between 2007 and 2014 [[1]].
Middle Eastern and Chinese Funds The article delves into the substantial presence of sovereign wealth funds in Middle Eastern economies, particularly those heavily reliant on oil exports. It provides a list of the top 10 Middle Eastern funds and highlights the influence of oil revenues on the wealth of sovereign funds in the region. Furthermore, it discusses China's significant export economy and the existence of multiple sovereign wealth funds, each with distinct investment goals and substantial assets under management [[1]].
Singapore's Wealth Funds The article explores Singapore's wealth funds, emphasizing their substantial holdings derived from the high savings and investment rates in the city-state. It provides details about the Government of Singapore Investment Corporation (GIC) and Temasek Holdings, including their respective asset sizes, investment strategies, and areas of focus. It also discusses the expansion of Temasek's investment strategy, including the establishment of a New York-based office in 2013 [[1]].
In summary, the article "Economic Terms Where the World's Richest Countries Invest" provides a comprehensive overview of sovereign wealth funds, their impact on the global economy, and specific examples of countries and regions with significant sovereign wealth fund holdings. It offers valuable insights into the ranking of sovereign wealth funds, their influence on the U.S. economy, and the distinct characteristics of wealth funds in different regions, including the Middle East, China, and Singapore.
