Strategic Investment and Risk Management for Sovereign Wealth Funds

Abstract

Sovereign wealth funds (SWF)1 have been around for a long time, at least since the 1950s. But their total size worldwide has grown dramatically over the last few years. Buoyed by rising commodity prices (at least until recently), desires to build up reserves for risk management purposes, and large capital inflows, many emerging markets as well as some developed countries have accumulated large SWFs in the last few years. The IMF now estimates that assets of SWFs will rise from $2–3 trillion today to about $6–10 trillion within five years (IMF 2007). Other estimates are that these SWFs can grow to $11–14 trillion by 2012 (see McKinsey et al. (2007); note that oil and many other commodity prices have been very volatile lately, so predictions as to future size are fraught with large uncertainties). At present, China, Kuwait, Norway, Russia, Saudi Arabia, Singapore, and the United Arab Emirates are among the countries that have the largest SWFs.KeywordsPension FundPrivate EquityScenario TreeAsset AllocationDownside RiskThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.