For the last few years, Sovereign Wealth Funds (SWFs) (1) have been a topic of particular interest among policy makers, academics, and economists. So far, the discussion has mainly focused on the existing and potential impacts the SWFs have on countries where they invest.9 However, the questions of what role such funds should play and have already played in their home countries have not received much attention. (3) Considering that there are as many as fifty SWFs that already exist around the world, (4) and that a half dozen countries are considering creating one, (5) this oversight is particularly notable.
The role of the SWFs in the world economy and the effect that SWFs may have on their home countries is particularly salient in light of the recent economic crisis. The worldwide economic downturn of 2007 and 2008 has resulted in some countries deploying the funds of their SWFs to fight the downturn, thereby bringing the ability of SWFs to affect domestic and international economies into focus. (6) Moreover, as a number of the major SWFs were created with the goal of supporting their home countries' economies during economic downturns and declines in commodity prices, the current economic crisis offers a unique opportunity to test the efficacy of SWFs in achieving their stated purposes.
Therefore, given that the benefits SWFs confer on their home states have been generally recognized, the main question that countries with a SWF must answer is which type of fund to create to derive from the most benefit. The choice of a particular type of fund depends on the objectives the country founding it hopes to achieve. Making a mistake in this decision can result in negative effects on the country's economy, nullifying whatever benefits the SWF could bring.
The history and experience of the Russian Sovereign Wealth Fund (RSWF) (7) is particularly instructive. Prior to establishing a SWF in 2004, Russia considered the creation of various types of funds, eventually experimenting with three SWFs. Each of them demonstrated different levels of success in achieving its stated objective and in benefiting the Russian economy. The performance of all three types of SWFs during the recent economic crisis has raised many questions concerning whether Russia established the correct types of SWFs and whether a different form of fund should now be created.
This paper seeks to begin to fill the gap in the literature on SWFs by offering an in-depth analysis of one country's experience with different types of SWFs. In doing so it describes the intense debate concerning the type and role of SWFs in the Russian economy by relying mainly on Russian language primary sources. The Russian experience may be relevant not only to scholars of SWFs, but also to policy makers considering the creation of new SWFs or the reform of already existing funds, because it offers many lessons, both positive and negative, from which decision makers can benefit.
This paper proceeds in two parts. Part I offers a brief discussion of the role and classification of SWFs throughout the world. Part II presents the Russian case study, describing the evolution of the RSWF, as well as its role and performance during the recent economic crisis. The story of the RSWF demonstrates the importance of carefully selecting the type of SWF a country would like to create, as selecting an inappropriate type of fund may have unintended negative consequences.
I. THE ROLE OF SOVEREIGN WEALTH FUNDS AND THEIR CLASSIFICATION
There are differing opinions concerning whether countries should establish SWFs in the first place. In general, the potential benefits of SWFs to their home states have been recognized. (8) As identified by the International Monetary Fund, the main benefits of SWFs to home countries include the reduction of boom and bust economic cycles, the greater diversification of the sovereign assets portfolio, and the facilitation of the intergenerational transfer of wealth. …