Glossary

Sovereign wealth fund

A sovereign wealth fund is a state-owned fund of the accumulated reserves that arise from running a trade surplus with other countries.

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).

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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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