The Sovereign Wealth Fund Controversy: 
The Issues and Suggestions

Walt Schubert 
La Salle University, Qatar University 

Les Barenbaum
La Salle University

Sovereign Wealth Funds have only recently caught the public’s attention. Sovereign Wealth 
Funds are investment funds typically financed through excess foreign currency reserves. These 
funds are owned by the citizens of the Fund’s country. Most of the discussion taking place 
concerns how these Funds can make host countries comfortable receiving their investment 
money. This paper takes the view that the obligation of the Fund is to maximize the utility of the 
owners of the Fund. The study discusses actions that both Sovereign Wealth Funds and host 
nations should take in order to make the market transparent and efficient. 

 Sovereign Wealth Funds are government owned investment funds typically funded by foreign
currency reserves, which are managed separately from official currency reserves. The origin can be from commodity sales or non-commodity factors. They have become controversial in large part due to their sudden growth. 

 The International Monetary Fund estimated in 2007 that sovereign wealth funds (SWFs) 
controlled as much as 3 trillion dollars in assets and that the total could jump to 10 trillion by 
2012.(Johnson, 2007) The Sovereign Wealth fund Institute listed 52 SWFs in 2009.2 Note that SWFs are typically distinct from public pension funds and from state owned enterprises. The color of the distinction may be quite gray. For example, Norway has both a large public pension fund that invests inside Norway and is not included as a SWF and also has the fourth largest SWF which is their Government Pension Fund Global. This fund invests abroad and is managed separately from its other government pension fund. However, it is not required, that in order to be classified as a SWF, the fund needs to invest exclusively abroad. 

 Nine of the current SWFs have, or are estimated to have, over 100 billion dollars of assets 
under management. (Sovereign Wealth Fund Institute, 2009)3 By far the largest fund is the Abu 
Dhabi Investment Authority (ADIA). In Mid-2009, the ADIA had assets of approximately 627 
billion dollars. The second largest fund is SAMA Foreign Holdings of Saudi Arabia estimated to have 431 billion dollars of assets under management. (Sovereign Wealth Fund Institute, 2009)

Of the largest 10 funds five are commodity based (all oil) and five are non-commodity based. 
Further, three of the non-commodity based funds are headquartered in China (including the Hong Kong Monetary Authority Investment Portfolio) and the other two funds are from Singapore.Singapore’s Temasek Holdings is the 10th largest SWF in the world with assets of 85 billion dollars under management. Finally note that four of the 52 SWFs noted by the Sovereign Wealth Fund Institute are owned by United States states. They include the Alaska Permanent fund which is listed as the 21st largest fund in 2009. (Sovereign Wealth Fund Institute, 2009)

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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.