SOVEREIGN WEALTH AND PENSION FUND ISSUES
by Adrian Blundell-Wignall, Yu-Wei Hu and Juan Yermo
January 2008
OECD WORKING PAPER ON INSURANCE AND PRIVATE PENSIONS 
No. 14

Sovereign Wealth and Pension Fund Issues.
Sovereign Wealth Funds (SWFs) are pools of assets owned and managed directly or indirectly by 
governments to achieve national objectives. These funds have raised concerns about: (i) financial stability, 
(ii) corporate governance and (iii) political interference and protectionism. At the same time governments 
have formed other large pools of capital to finance public pension systems, i.e. Public Pension Reserve 
Funds (PPRFs). SWFs are set up to diversify and improve the return on foreign exchange reserves or 
commodity revenue, and to shield the domestic economy from fluctuations in commodity prices. PPRFs 
are set up to contribute to financing pay-as-you-go pension plans. The total of SWF pools is estimated at 
around USD 2.6 trillion in 2006/7, and is getting bigger rapidly, owing to current exchange rate policies 
and oil prices. The total amount for PPRFs is even larger, around USD 4.4 trillion in 2006/7, if the US
Trust Fund is included (USD 2.2 trillion if excluded). SWFs and PPRFs share some characteristics, hence 
give rise to similar concerns. However, their objectives, investment strategies, sources of funding and 
transparency requirements differ. There is concern about strategic and political objectives of SWFs, and 
their impact on exchange rates and asset prices. But SWFs also provide mechanisms for breaking up 
concentrations of portfolios that increase risk. Enhancing governance and transparency of SWFs is 
important, but such considerations have to be weighed against commercial objectives.

 Introduction

Sovereign Wealth Funds (SWFs) are pools of assets owned and managed directly or indirectly by 
governments to achieve national objectives. They may be funded by: (i) foreign exchange reserves; (ii) the 
sale of scarce resources such as oil; or (iii) from general tax and other revenue. There are a number of 
potential objectives of SWFs, which are not always easy to attribute to a particular fund; and some funds 
may have more than one of the distinguishable objectives. Some of these are: (i) to diversify assets; (ii) to 
get a better return on reserves; (iii) to provide for pensions in the future; (iv) to provide for future 
generations when natural resources run out; (v) price stabilisation schemes; (vi) to promote 
industrialisation; and (vii) to promote strategic and political objectives.
These funds have raised concerns about: (i) financial stability, (ii) corporate governance and (iii)
political interference and protectionism.
At the same time governments have formed other large pools of capital, in particular to finance public 
pensions, which are generally referred to as Public Pension Reserve Funds (PPRFs). There are two such 
types of funds: those set up and owned directly by government (Sovereign Pension Reserve Funds, or 
SPRFs) and those belonging to the social security system (Social Security Reserve Funds, or SSRFs). 
SPRFs may be considered a type of SWF with a specific mandate to finance future public pension 
expenditures. On the other hand, not all SSRFs may be considered SWFs. Some are legally independent of 
government and their balances are not integrated for national accounting purposes into the government 
accounts.
This paper focuses primarily on the issues at the broad macro level. It also compares the possible 
effects of different kinds of pools of capital, depending on how they are formed and on their governance, 
rules and strategies.

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In this BLOG we will look at pensions and their impact on what are called Public Private Partnerships or P3’s.  IT will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies.