Things you don’t know about sovereign funds
Sovereign funds and why would they become the world’s new emperors?
What is a sovereign fund?
Sovereign funds are owned by oil and petroleum rich countries which have assets such as real estates, shares, bonds, investment agencies, mineral and grain trade. Sovereign funds are different from investment funds; investment funds have emerged as a result of establishing investment firms in the 19th century in Holland. The trend moved to France later on. Furthermore, investment funds emerged in America in 1930s; a related law was issued to manage such funds in 1940.
Kuwait is the first to have a sovereign fund
The first sovereign fund was established in 1953 in Kuwait under the name of “Future Generation Fund FGF”; its assets are estimated at $399bn.
The world’s largest 20 investment funds are estimated at $335bn, 10 per cent of the world’s money ($65 trillions), according to 2015 estimations.
Government Pension Fund of Norway is the largest sovereign wealth fund in the world as it has assets worth $818bn whereas the smallest fund is the Libyan Investment Authority that has assets of $65bn.
Standard Chartered Bank estimated the future value of sovereign wealth funds in the next decade as $13,4 trillion whereas Morgan Stanley estimation is $17,5 trillion.
The global effect of Sovereign funds
Financial market experts believe that such funds have a significant, positive role in the global market. When 2008 financial crisis stroke, most of sovereign wealth funds rushed to finance the US economy; however, all investors fled away to avoid the possibility of economic recession.
Similarly, Abu Dhabi’s Investment Authority, the world’s second sovereign fund with a capital worth $773bn, has seized 4.9 per cent ($7,5bn) of CitiGroup shares.
Future Generation Fund and Dubai International Capital Fund, subsidiary to Dubai Holding, have both partaken in Asian investments worth $700m.
Lack of transparency
Sherif Khourshid, an expert in financial markets, says that sovereign wealth funds have a number of negative points such as lack of transparency in doing their business as they do not tell the type of their investments, business or future plans in details.
Khourshid highlights the wide dominance of sovereign wealth funds in many countries in the world, especially the third world countries that are rich with natural resources such as African countries. He added that these funds were controlling the Egyptian financial markets at some point; therefore, decision makers have to make financial policies that attract such funds to invest and stabilize their investments in Egypt.
