Sovereign wealth funds for macroeconomic purposes
Erling Steigum
BI Norwegian Business School, Oslo
erling.steigum@bi.no
December 2012
Paper prepared for the Swedish Fiscal Policy Council (Finanspolitiska Rådet).

Abstract
Sovereign wealth funds (SWFs) have become more numerous after the turn of the century, but the 
largest ones have been set up by non-democratic countries in the Middle East and Asia. Norway´s 
large SWF is an exception. In democratic societies, SWFs have been established in Australia, New 
Zealand and Ireland to pre-fund pensions in response to expected population ageing. The management 
of Norway’s Fund has been index-based, with only a very small role played by active management. In 
most other SWFs around the world, active management is much more important, and the cost of 
management is much higher than in Norway. The academic literature suggests that although active 
management could be worthwhile, many empirical studies do not support the belief that external 
active management generates excess after-fee returns. An empirical study of active management in 
Norges Bank finds that 70 percent of the (small) active management results from equity can be 
explained by other systematic risk factors than market risk. There is no strong consensus about how a 
global fund should diversify its assets among asset classes and currencies. We argue that SWFs could 
have positive macroeconomic effects in democratic welfare states if the government runs pension 
programs financed on a pay-as-you-go basis, and future population ageing is significant. Still, a SWF 
is hardly politically feasible if there is no broad agreement in the electorate and among political parties 
that fiscal surpluses and a SWF is worthwhile

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This BLOG  looks at pensions and their impact on what are called Public Private Partnerships or P3’s these are not really about private funding at all but about two streams of public funding, pensions and government with private capital a third partner.
We 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. 
Finally taking the long view we will show how these funds are forms of evolving social capital that is dominating private capital as we evolve into socialization of capital. 
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