Large Funds with a Long View: Sovereign wealth funds are significant investors globally.

• Author: Wolf, Greg
• Position: INTERNATIONAL TRADE SPECIAL SECTION / SOVEREIGN WEALTH

State-sponsored investment funds, better known as sovereign wealth funds, continue to rise in economic clout as their assets under management continues to grow and they deploy funds into a broader range of investments. While these government-controlled investment vehicles vary considerably in size and scope, as well as by their particular investment strategies and policies, they are a significant force in the financial markets and their impact can be felt in all corners of the world, including Alaska.

Typically, the source of the capital for these funds originates either from excess foreign currency reserves earned through exports or from income derived from commodity sales such as oil and gas. China's sovereign funds would be an example of the former, while

Norway's would be an example of the latter. Generally speaking, Asian funds arose from export earnings while Middle Eastern, European, and American funds arose from commodity earnings. Most of these funds invest globally. Some of them dedicate a certain percentage of their portfolio for investment in their own countries.

According to the Sovereign Wealth Fund Institute (SWFI), there are now seventy-one sovereign funds. The value of their holdings is estimated to be $8.1 trillion as of December 2018. These holdings encompass a wide variety of financial assets including stocks, bonds, real estate, precious metals, and other investable assets. They also include so-called "alternative investments" managed by hedge funds, private equity and venture capital funds. Analysts at the SWFI, who track these funds, expect the value of the funds to hit $10 trillion by 2020. That growth projection is based, however, in large part, on anticipated higher oil prices, which may or not occur consistent with this timeline.

While Alaska was not the first American state to establish a sovereign wealth fund--that distinction belongs to Texas--it is home to the largest fund in the United States. With assets of approximately $65 billion, the Alaska Permanent Fund currently ranks 19th among the world's funds, ranking just below Libya ($66 billion) and just above Kazakhstan ($60 billion). By contrast, at just over $1 trillion, Norway's Government Pension Fund Global is the world's largest fund. In addition to Norway, other countries with very large funds include China, the United Arab Emirates, Kuwait, Saudi Arabia, Hong Kong, and Singapore. One of China's sovereign funds is approaching the $1 trillion mark, as...