Sovereign Wealth Funds (pt.1)
- Dobromir Risov
- Aug 21
- 3 min read
Updated: Oct 31
Intro
Today I write about Sovereign Wealth Funds. They are rarely mentioned in the news. If mentioned, then it´s usually when an investor is urgently needed with a lot of cash to spare. In spite of not being mentioned often in the news, Sovereign Wealth Funds are important players in the capital markets. Considering this, I dedicate several blogs on this topic: in part 1 I write about the beginnings of those Funds. I go in depth in part 2 and 3.
Main
I begin with a definition from Britannica Money. A Sovereign Wealth Fund is defined as:
“a state-owned investment fund
that governments use
to invest surplus revenues and other financial reserves.”
Sovereign Wealth Funds are distinct from Endowment Funds as these are run by universities. Further differentiation is necessary from governmental entities with a social focus: for example the US Social Security Trust, the Government Pension Investment Fund (Japan) or the Pension Plan Investment Board (Canada).
The largest Sovereign Fund, is from Norway and was founded in 1990.. I will talk about this Fund in more detail in a separate blog. The Fund is financed through revenues from its natural resources lying under the water: oil & gas. The first Sovereign Wealth Fund however was established in 1953 in Kuwait: the Kuwait Investment Authority or the “Ajyal Fund”. Kuwait´s natural resources are in the desert. History savvy readers will rightly object that in 1953 Kuwait was not yet an independent country. Kuwait was part of the British Empire until 1961. When you allow for non-federal institutions, then I might mention the state of Texas. Shortly after Texas was annexed by the US in 1845, Texas set up two funds: The Permanent School Fund and the Permanent University Fund. In Texas too, the Funds´ financing was from "particularly oil and natural gas revenue"
Now, let´s go back to more recent times: three years after Kuwait established its Fund, the little known Gilbert islands (Micronesia) set up their own sovereign wealth fund in 1956. Albeit amongst the first to establish, the Gilbert Islands are not ranked amongst the 100 largest funds on the website of SWF Institute. Further according to a report from the IMF published in 2010 there were about two dozens of SWFs in operation by the year 2000. That number has doubled within 9 years. A quick review by myself on the website of the Sovereign Wealth Fund Institute website reveals the number has doubled to more than 100 such funds in 15 years. Those 100 funds manage a total of USD 15 trillion in 2025.
Have there been newcomers recently? According to an article from 2023, Ireland, planned to set up its own sovereign fund. Contrary to most countries with a SWF Ireland has no natural resources. The idea was to bind future governments to set aside annually 0.8% of GDP to fund the “Future Ireland Fund”. The government launched the fund in 2024 and has already allocated EUR 4 billion. Ireland also runs a second Fund called Ireland Strategic Investment Fund. And what about the United States? Current US president Donald Trump floated the idea of a SWF when he was looking for a way to buy the US business of the social media platform TikTok.
Summary
Sovereign Wealth Funds usually stay low key and appear rarely in the news. I presented various historical key points: the first SWF and the largest one. I further mentioned the total amount of money under management for the 100 largest Funds. The majority of those Funds have been established after the year 2000. Maybe surprisingly for the reader one of the most capitalistic countries in the world, the United States of America has no SWF yet. If you show some flexibility then Texas a state in the US runs 2 such Funds. Worth noting, Ireland, a country with no oil and gas resources, has established two SWFs in recent years. I go in more detail in part 2 on SWFs.
Sources:
What is a Sovereign Wealth Fund (Britannica Money),
(Wikipedia),
Ireland plans Sovereign Wealth Fund (Markets Group),
Data on date of inception (Sovereign Wealth Fund Institute),
Chapter 1, Demystifying Sovereign Wealth Funds (IMF eLibrary)
Frequently Asked Questions
Where was the first Sovereign Wealth Fund founded? In Kuwait. The Fund is called Kuwait Investment Authority or the “Ajyal Fund”.
Where is the largest Fund from? From Norway. The Norway Government Pension Fund was founded in 1990.
Do the United States of America have a Sovereign Wealth Fund? No. The idea was floated when there were talks about buying TikTok´s US business.
Does a country have to be rich in natural resources to start a Sovereign Fund? No, as can be seen in the case of Ireland.
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