Sovereign Wealth Fund and Economic Indicators: An Exploratory Study

Abstract

Sovereign Wealth Fund (SWF) is a term which is related to investments made by sovereign in other countries or simply a cross-border investment. This term has gained popularity in recent times because of these funds’ huge investments and getting more and more Sovereign Wealth Funds post1990s. A Sovereign Wealth Fund is a capital investment made by governments to earn a higher return on their total reserves. It is a part of their diversification strategy, where earlier, all investments made by sovereign were in risk-free investments, namely, US Treasury Bills and bank deposit. Devaluation in dollar price has added more value to Sovereign Wealth Funds. Today, there are around 122(SWF Institute, 2020), Sovereign Wealth Funds across globe, but most of wealth is concentrated in Middle East countries. Reason for this concentration is revenue generated by exporting oil and gases, used to create a dedicated Sovereign Wealth Fund. Developing countries like Indonesia and India providing different incentives to these kinds of funds to invest in their country,like in recent budget of 2020, Government of India has provided 100% tax relief on income such as interest, dividend, and capital gains to Sovereign Wealth Funds, investing in infrastructure sector with a minimum locking period of three years. This paper will analyze, relation and Impact of Economic Indicators on SWF, whose asset under allocation is around $7,757.36 billion (SWF Institute, 2020) worldwide, which originated from commodity and non-commodity earnings of government. Pearson correlation and Linear regression applied to find impact and relation between economic indicators and SWF’s Asset Under Management. Study’s outcome positively related to SWF’s AUM, whereas only total reserve impacts Sovereign Wealth Fund.