In November 2007, I received a call from a friend in policy circles asking me what I knew about sovereign wealth funds. This was shortly after the world was discovering them despite their fifty-year history. I had followed the debate without spending too much time on the topic but what struck me was how little factual research had been conducted. Learned men and women were offering up opinions about the potential for doom from the use of sovereign wealth funds with virtually no facts to support their assertions. My first humble research into the field sought to correct this glaring oversight by providing data and analysis of sovereign wealth fund holdings.
Since then, the interest in sovereign wealth fund research has exploded. However, despite some notable examples, there remains strikingly little research into the institutions and their behavior themselves. This book is an attempt to rectify this and provide information about sovereign wealth funds and the unique circumstances they face. Too often, sovereign wealth funds are lumped into one homogeneous group, but the broad differences among the funds becomes apparent upon closer inspection. This book is not an attempt to laud or critique sovereign wealth funds, but it is meant to explore them in their rich diversity. Like any great Shakespearian character, sovereign wealth funds are neither uniformly good or evil but are institutions caught between two poles. It is my hope that this book will explore these institutions in all their richness and not depict them as uniformly good or bad.
In my attempt to provide a fuller more detailed background on sovereign wealth funds, I have organized the book into three sections. Part I comprises four chapters that provide a technical framework for understanding sovereign wealth funds. Chapter 1 provides a history and details the evolution of sovereign wealth funds from stabilization funds. Moving from the early history of the Kuwait Investment Authority through to the World Bank interest in stabilization funds, I seek to provide a foundation for how the fund structure evolved for commodity exporters. Chapter 2 provides an economics framework within which to study sovereign wealth funds. Despite the common perception, there is a large amount