February 25, 2025

Sovereign Wealth Funds (SWFs) are investment vehicles owned by countries. These funds can act as investment accounts or development tools, or both. The concept of a sovereign wealth fund is to grow current funds for the benefit of future generations.

These funds have several potential uses and countries use them differently. Some countries use SWFs to invest their economic or trade surpluses (What a concept!). This allows for the future stabilization of the economy in times of financial stress. It can also reduce the dependency on a singular commodity. If a country is an oil rich state, it makes a lot of sense for the country to invest a portion of its petroleum proceeds into a SWF for diversification away from oil in order to reduce economic shocks. Some countries use SWFs as public benefit pension funds.

SWFs often provide a source of funding for multinational firms engaged in global investment and trade, contributing to economic development and job creation. SWFs can also be used to further geopolitical agendas.