Sovereign Fund of Brazil

What Is the Sovereign Fund of Brazil?

The term Sovereign Fund of Brazil refers to a sovereign wealth fund that was created by Brazil in 2008. The fund was developed to provide support to the country. Its objectives included funding projects of strategic interest to the nation and to help Brazilian firms expand their reach abroad. The Brazilian government dissolved the fund in 2019 in its efforts to open up the national economy.

Key Takeaways

  • The Sovereign Fund of Brazil was a sovereign wealth fund created by the Brazilian government in 2008.
  • Its objectives included funding projects of strategic interest to the nation and to help Brazilian firms expand their reach abroad.
  • The government invested in the fund when the economy experienced periods of growth and used it to spend during slowdowns.
  • The fund was dissolved in 2019 to help pay down the national debt.

Understanding the Sovereign Fund of Brazil

The Brazilian government created the Sovereign Fund of Brazil on Dec. 24, 2008. Like other sovereign funds, it was a state-owned fund that aimed to benefit Brazilians and the national economy. It was funded by money from the country's surplus reserves. The government closed the fund in September 2019 to pay off its national debt.

The fund was founded with an initial target of $20 billion. Brazil's booming foreign currency reserves rose by $32 billion in 2009 to $239 billion, which allowed the government to create the fund. In January 2010, the Brazilian government said it would allow the fund to buy U.S. dollars in the foreign exchange market in a bid to stem the rise of the Brazilian real, the national currency.

The Sovereign Fund of Brazil was overseen by an advisory board comprised of ministers and the central bank's president. Together, board members decided the direction of the fund, from approving its investments as well as keeping the fund aligned with its goals.

The Sovereign Fund of Brazil was developed to help expand the Brazilian economy by supporting national companies in their exporting efforts. It was also used as a way to boost investment in the country. The government's goals were to invest in the fund when the economy experienced periods of growth and to use the fund to spend during slowdowns.

Special Considerations

The Sovereign Fund of Brazil is just one type of sovereign wealth fund. When a country sets aside a pool of money derived from the country’s own reserves for investment, it is referred to as a sovereign wealth fund. The idea of sovereign wealth funds began in the 1950s as a way to deal with a country’s budget surplus.

A sovereign wealth fund’s purpose is to benefit the country's economy and its citizens. Funds generally earn income from central bank reserve budgets and trade surpluses or from revenue generated by their country’s natural resources. The investments available to sovereign wealth funds differ from country to country.

The risk management of sovereign wealth funds generally ranges from very conservative to a high tolerance for risk.

The first of its kind was Kuwait’s Investment Authority, which was established in 1953 in order to deal with the country's oil revenue. The largest sovereign wealth fund is the Government Pension Fund Global of Norway with over a trillion dollars in assets. The country’s fund was previously known as the Petroleum Fund of Norway and was set up with surplus funds from oil sales.

The United Arab Emirates also has a large sovereign wealth fund, which comes from the country’s oil reserves. Because the UAE depends heavily on its oil exports, and in order to protect itself from oil-related risk, the country’s sovereign wealth fund diversifies the nation's assets.

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