Sovereign Wealth Funds: Growing Role in the Eurasia Region

For decades, national investment vehicles have been operated by a number of countries, but sovereign wealth funds (SWFs) have only recently become important players in global financial markets. Sovereign funds have been around since 1953, when the Kuwait Investment Authority (KIA) was established to benefit future generations of Kuwaitis when the oil stopped flowing. But it is only since the turn of the millennium the SWF’s asset base has grown significantly and that the importance of sovereign funds in the global financial markets has increased substantially. Estimates suggest that sovereign wealth funds have quadrupled in size between 2003 and 2007 and in 2006 alone, the SWF’s asset base grew by US$1,200 billion.

The key economic force behind these funds’ growth is the imbalance in world trade; some countries are running huge surpluses. Funds in Asia, and more particularly in China, have been boosted by income from huge trade surpluses. In addition, the rising price of oil and gas has prompted Middle East countries to accumulate substantial foreign reserves. As a result, middle income countries in Asia and the Middle have become able to assert themselves in international financial markets to an extent unprecedented in modern history.