Sovereign Wealth Funds (SWFs) are assets held by national governments in another country’s currency. They are government-owned investment funds, financed by foreign currency reserves and managed separately from official currency reserves. SWFs are pools of money used by governments to invest for profit and in foreign companies.

Sovereign wealth funds may be created through commodity exports that are either taxed or owned by the government, or through official foreign exchange reserves. There are no restrictions on what SWFs invest in, just like any other independent investment fund.

Created for various reasons with their own specific objectives. sovereign wealth funds can be classified into five types based on the main purpose they have been created for:

• Stabilization funds safeguard against volatile commodity price swings
• Savings funds build up savings for the future by converting nonrenewable assets into a more diversified portfolio

• Reserve investment corporations are established to increase return on reserves for sustainable long term capital growth
• Development funds help fund socio-economic projects or promote industrial policies to increase a country’s economic growth
• Contingent pension reserve funds provide for contingent unspecified pension liabilities on the government’s balance sheet

Currently, more than twenty countries have sovereign wealth funds and many more have expressed an interest in establishing one. Some of the countries holding sovereign wealth funds include Kuwait, Abu Dhabi, Norway, Singapore, China, and Russia. The largest sovereign wealth fund is the Abu Dhabi Investment Authority (ADIA), which controls around $875 billion in assets.

The International Working Group of Sovereign Wealth Funds was established by the International Monetary Fund (IMF) in May 2008 to agree on a common set of voluntary principles for sovereign wealth funds and has representatives from twenty-five IMF member nations.