Norway's Sovereign Wealth Fund - the Government Pension Fund Global- just crossed $1 trillion dollars in assets. Weakness in the U.S. dollar, combined with the robust equity markets have driven the fund's dollar value past the landmark.
When countries have excess reserves, they sometimes create investment vehicles that deploy that money and generate returns for the nation itself. Such funds are called sovereign wealth funds (SWF) and in some cases they have a gigantic corpus. The money in such funds is managed partly in-house and partly by external managers in some cases. Investments of the SWFs are across the globe and in a range of asset classes including equities, debt, real estate and alternative assets such as hedge funds or private equity. (Read also: An Introduction to Sovereign Wealth Funds)
But there is an important distinction that needs to be made. While the money is held in the country’s reserves and is invested, the SWF is different from a national pension fund like the Social Security Trust Fund or the California Public Employees' Retirement System (CalPers.) The main difference is that SWF money belongs to the state, whereas the money in pension funds is eventually paid out to the people. A lot of the SWFs of nations in the Middle East were set up to invest the windfall that these countries gained from the oil boom in the middle of the twentieth century. (Read also: Where Do Pension Funds Typically Invest?)
Here’s a look into the largest sovereign wealth funds by assets under management.
1. Government Pension Fund Global—Norway
Even though its name has the word pension fund, Norway’s sovereign wealth fund is the largest in the world and with over $1 trillion in assets it is growing fast. While the fund was set up as the Petroleum Fund of Norway to invest the surplus from oil sales, it changed to its current name in 2006. It is managed by the Norwegian Central Bank, the Norges Bank and in the last year alone, it made gains of close to $53 billion, thanks to the rally in U.S. stocks. In the first half of this year the fund has given a 6.48% return.The asset allocation mix is tilted in favor of equities with 65.1%, fixed income at a little over 32.4% and 2.5% in real estate. Some of the fund’s biggest equity holdings include Nestlé SA, Royal Dutch Shell (RDS.A), Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL) and Microsoft (MSFT).
2. Abu Dhabi Investment Authority
The Abu Dhabi Investment Authority was established in 1976 and as of the end 2015 its assets under management were $828 billion according to the Sovereign Wealth Fund Institute, which calls it the largest SWF in the Middle East. In its 2015 annual report, the fund boasts of 20-year annualized return of 6.5% and a 30-year annualized return of 7.5%. The fund deploys 32-42% in developed equities, 10-20% in government bonds, 5-10% in real estate and holds about 10% of its assets in cash. Geographically, its exposure to North America can be 35-50% of its assets; 20-35% of assets can be allotted to Europe and while 15-25% could go to emerging markets. The ADIA invested in Citi at the very beginning of the 2008 financial collapse, but eventually sued the group for misrepresentation, reported the Wall Street Journal.
3. China Investment Corporation—China
Set up in 2007 with $200 billion in capital and a mandate to generate returns through diversification of China’s foreign exchange holdings, the latest figures available put this fund’s assets under management at $813.5 billion as of December 2016. Over 45.8% of the fund’s capital has been invested in equities across the world, 37% in alternate investments, 15% in fixed income investments and 1.8% is kept in cash. Last year, the fund delivered a generous 6.2% return.
4. Kuwait Investment Authority—Kuwait
This is the oldest sovereign wealth fund in the world, established in 1953 and notorious for keeping its financials and strategies very close to its chest. According to the Sovereign Wealth Fund Institute, the fund currently has $524 billion in assets. It was set up to invest oil surplus revenues and to reduce the dependence of the country on oil reserves. The Wall Street Journal reported that the KIA invested $3 billion in Citi and $2 billion in Merrill Lynch as both banks scrambled for funds at the start of the financial crisis in 2008, eventually selling its Citi stake for a $1.1 billion profit a year later.
5. SAMA Foreign Holdings—Saudi Arabia
The Saudi Arabian Monetary Authority is the nation’s central bank with assets of over $514 billion, according to the Sovereign Wealth Fund Institute. It invests in assets classes across the globe through different subsidiaries, the most public being the Public Investment Fund (PIF). Last year Bloomberg reported that the Saudi ownership of U.S. Treasuries stood at $116.8 billion as of March 2016. The PIF also made news with its $3.5 billion investment in Uber Technologies in June last year.