A Sovereign Wealth Fund (SWF) is a state-owned investment fund that a government creates to manage national wealth. These funds are typically built using surplus revenues, such as earnings from natural resources, trade surpluses, or foreign exchange reserves. Governments invest these funds in stocks, bonds, real estate, infrastructure, and other assets to generate long-term wealth and financial stability.
How Does a Sovereign Wealth Fund Work?
A government saves money (often from excess revenue or resource sales).
The money is invested in a diversified portfolio, including:
Stocks & Bonds (global and domestic)
Real Estate & Infrastructure
Private Equity & Venture Capital
Other Alternative Investments
The goal is to generate returns over time to support public programs, economic development, or stabilize government finances.
Why Do Countries Create Sovereign Wealth Funds?
Governments establish SWFs for several reasons:
Stabilization – To protect the economy from market shocks (e.g., oil price fluctuations).
Savings for the Future – To save wealth for future generations, especially in resource-rich countries.
Foreign Exchange Management – To manage currency reserves and avoid excessive inflation.
Economic Development – To fund infrastructure, innovation, and growth projects.
Pension & Social Welfare Funding – Some SWFs support public pensions or healthcare systems.
