Sovereign wealth fund

A sovereign wealth fund (SWF) is state owned. Typically, it is funded by a country’s central bank from the accumulated reserves that arise from running a trade surplus with other countries. The fund is usually tasked with a specific investment objective that will benefit its country’s citizens.

In short, like any investor, its job is to earn a decent return on its capital while avoiding too much risk. For an oil-rich Gulf state, that might involve finding investments – say, London property – that diversify the state’s revenue streams (so rent is earned alongside oil money).

The range of investments such a fund can choose varies – some are restricted only to very liquid public securities, for example. The size of each fund varies too, but some are huge – the estimated value of all SWFs is more than $2trn.

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