Sovereign Wealth Fund
A sovereign wealth fund (SWF) is a pool of funds drawn from the country’s reserves owned by central government or central bank. Sovereign wealth funds can be invested locally or internationally.
Most of the SWF’s are normally derived from two types of categories; Commodities (products exported to other countries, either owned by government subsidiaries or taxed from private companies) and Non-Commodities (assets officially transferred from foreign exchange reserves).
Sovereign wealth funds are generally produced by the government if country has budgetary surpluses and little to no international debt. This excess of cash is cannot be possibly always hold as a reserve, thus government allows SWFs for the betterment of the resource revenue to overcome the issues of price inflation, unemployment, economic instability, and many other vital factors contributing to the GDP of certain country.
There are two types of SWFs:
Saving Funds – are created for the long-term future generation funding, such as pension funds.
Stabilization Funds – are created to condense the instability of the government revenues, to counter the adverse effects of the government spending and expenditure.
How SWF help economy of the country?
- Provides protection and stabilization to the budget and economic volatility (revenue, imports, and exports).
- Provides strategic planning and execution for the uncertain times.
- Produces more returns than from foreign exchange reserves.
- Powers social and economical development of the country.
- Sustains long-term growth for the capital.
- Diversifies reserve portfolio
- Disperses redundant liquidity by providing assistance to the authorities.
- Increases the value of various asset markets, when its own pool expand in size and importance.
- Offers possibility of going global for the investments.
- Helps to favor the political strategies of the country.
PPM experts can provide complete guidelines for Sovereign Wealth Funds (SWF) management. Our organization is committed to providing wealth management consultancy, wealth management advisory services, and other personalized financial solutions.