Largest Sovereign Wealth Funds	Country	Assets under management (billions)
Abu Dhabi Investment Council	UAE	$875
Government Pension Fund of Norway	Norway	$380
Government of Singapore Investment Corp	Singapore	$330
Saudi Arabia - various holdings	Saudi Arabia	$300
Kuwait Investment Authority	Kuwait	$250
China Investment Corporation	China	$200
Hong Kong Monetary Authority Inv Portfolio	China	$163
Temasek	Singapore	$159
Stabilisation Fund (and National Welfare Fund)	Russia	$157
Australian Future Fund	Australia	$67
Qatar Investment Authority	Qatar	$50
Libyan Arab Foreign Investment Co	Libya	$50
Revenue Regulation Fund	Algeria	$43
Alaska Permanent Fund	US	$40
National Pensions Reserve Fund	Ireland	$31
Brunei Investment Agency	Brunei	$30
Korea InvestmentCorporation	South Korea	$30
Khazanah Nasional	Malaysia	$26
Kazakstan National Fund	Kazakhstan	$22
Alberta's Heritage Fund	Canada	$16
Source: IFSL

Q: What is the role of the sovereign wealth funds and the context in which they exist?

A: The purpose of the sovereign wealth funds is to preserve and grow the surplus income of the respective economy. In Kuwait and in the Arab nations, the surplus is related to oil exports, but in the case of Singapore, it is the surplus of a global financial trading center. In China, the China Investment Corporation represents the wealth created by the fast built-up of a massive export market as China has become the largest exporter in the world.

The word ‘sovereign’ can be misleading because it typically indicates a ruler - a king or a queen, while sovereign wealth funds exist in countries, where there is no sovereign. Although the word ‘sovereign’ is in use since 2005, it has some very old-fashioned connotations and I think that the term ‘national wealth fund’ would be more appropriate.

The sovereign wealth funds exist since 1953, when the Kuwait Investment Authority, or KIA, was established. Founding the fund was related to realizing the scope of the wealth that was created through the oil.

An interesting fact is that one of the very first registered SWFs was the Kiribati Revenue Equalization Reserve fund, which was created in 1956 in the Gilbert Islands, a British dependent territory. The surplus of the Gilbert Islands came from the export of phosphates, or bird manure, and the fund has grown to $520 million.

The point is that the source of wealth can vary, but all those surpluses are being created by the supply and demand in the global market economy. The oil price is not made by the Arab oil producers; it is made by the Western markets. The ability of China to accumulate a large surplus in a separate fund is also the result of Western consumerism. If the U.S. stops importing the goods, China will not have the surplus income to pump back into its economy.

Q: How are the profits of these funds typically distributed? What’s the purpose of the capital accumulated?

A: The idea of such funds is to preserve the capital to future generations. In the case of Singapore, which generates its surplus by financial trading, the income is going to carry on, but for the countries with finite resource like oil, the source of wealth will run out at some point. So, the main priority of all of the SWFs is the preservation of wealth, not the aggressive wealth creation. They realize that the oil running at more than $100 could go back to $35, so they take the surplus income out and invest it for the future.

Q: The SWFs raise discussions and concerns in the West. How reasonable are those concerns? What are some of the myths and misconceptions?

A: Certain conservative American politicians are very wary of those funds and the wealth they accumulate but, as I said, the SWFs are not speculative or aggressive in nature. Typically, they invest for the long run and look for a reasonable, not excessive, return.

When Abu Dhabi Investment Authority, or ADIA, invested $7.5 billion into Citigroup, it got junk bond status yield. Citigroup is a well-respected organization with worldwide presence, but it had serious problems with the sub-prime loans and needed new capital to reorganize its balance sheet. Easily accessible capital of that size was available only from the SWFs, which have accumulated and preserved it for years.

People also tend to forget that this capital, more often than not, is managed by western managers because of the skills that have to be imported to train the people. China works with some of the big private equity players, such as Blackstone Group, because they acknowledge they haven’t got the expertise. KIA is managed by Kuwaitis, who received excellent training. In Abu Dhabi, there had always been a western advisor, but the local experts have become the real decision makers over time. Qatar now plans to increase its staff members from 200 to 400 this year.

The bottom line is that these are professionally run organizations with good hierarchies that follow standard management practices. They have divisions focusing on fixed income, specific geographical areas, industries or sectors. To some degree, Dubai gives a bad impression because they invested into Daimler Chrysler and got out of that transaction only after two years but, typically, the SWFs do not take a short-term view.

Q: What are the grounds for the paranoia, in your opinion?

A: I think that the paranoia is mainly because of the lack of disclosure. The politicians and the press still don’t understand the SWFs and it is very difficult for the journalists to find any information. The SWFs don’t publish any accounts because, theoretically, that wealth belongs to the ruler of the country.

One of the exceptions is the Norwegian Fund, which has full disclosure and a clearly defined ethical investment policy. That’s a typical European fund which has to be open and accountable to the world. Temasek in Singapore is also accountable.

But we cannot expect disclosure from the Arab countries because of the specifics of the culture. Why should an absolute ruler, which in affect is the president of United Arab Emirates, let his private business be known? So, it is true that the trades happen below the radar, and it makes sense because with the trillion dollars, they can move markets. That’s the reason for having Chinese walls in investment banking.

Q: And the same refers to Blackstone, Carlyle, and all the other private equity funds. None of them would publish its holdings.