Policy Brief 21-3: Sovereign Wealth Funds Are Growing More .

POLICY BRIEF21-3 Sovereign Wealth Funds AreGrowing More Slowly, andGovernance Issues RemainJulien Maire, Adnan Mazarei, and Edwin M. TrumanFebruary 2021The term “sovereign wealth fund”—coined 15 years ago by the British economistAndrew Rozanov (2005)—denotes funds accumulated by a government that areinvested, for many funds mostly abroad, to benefit the country in the future. Thepurpose of these funds has been to smooth out revenues from fossil fuels andother natural resources, supplement pension funds, promote development, and/or save for a rainy day. Estimates of the assets under management of sovereignwealth funds (SWFs) at the end of 2007 ranged from 2.6 trillion (Stone andTruman 2016) to 3.2 trillion (Sovereign Wealth Fund Institute in Stone andTruman 2016) to 4.0 trillion (Global SWF 2021).1 Analysts predicted that totalSWF assets under management would increase to as much as 17.5 trillion by 2017(Truman 2010). In the event, their total assets were much lower. The SovereignWealth Fund Institute estimate for the end of 2020 is 8.3 trillion, essentially thesame figure used in this Policy Brief for the SWFs it covers.2SWFs have never been without controversy. In 2007, some analysts expressedconcerns that these large pools of investible funds owned by governments, manyof which were on the fringes of the global financial system, would be used forpolitical purposes or that they could disturb the global financial system. Thepotentially distorting impact of SWFs on the economies of countries that ownedthem was also a source of concern, raising questions about their governanceand possible politicization. Responding to these concerns, Truman (2007, 2008)developed a SWF scoreboard to assess the transparency and accountability ofthese funds and encourage funds to improve their public images.31These estimates differ partly because they are based on different definitions of SWFs. Onemajor difference is the inclusion or exclusion of the investment portfolios of the People’s Bankof China and the Saudi Central Bank (previously called the Saudi Arabian Monetary Authority).2Global SWF had different estimates of assets under management at the end of 2020 for someof the 64 funds covered here. Using those figures would reduce the total for the 64 funds to 7.3 trillion.3The scoring of the SWFs except for the 2007 scoreboard is for the year before the year forwhich the data on the size of funds were collected. The data for the 2007 scoreboard are fromthe end of 2007.1750 Massachusetts Avenue, NW Washington, DC 20036-1903 USA 1.202.328.9000 www.piie.comJulien Maire was a researchanalyst at the PetersonInstitute for InternationalEconomics from November2019 through October 2020.He worked with C. FredBergsten Senior Fellow OlivierBlanchard on issues relatedto macroeconomic policy.Adnan Mazarei is nonresidentsenior fellow at the PetersonInstitute for InternationalEconomics. He was a deputydirector at the InternationalMonetary Fund. Edwin M.Truman, senior fellow at theMossavar-Rahmani Centerfor Business and Governmentat Harvard’s KennedySchool, was associated withthe Peterson Institute forInternational Economics from2001 to 2020. He joined theInstitute as a senior fellowand was nonresident seniorfellow from July 2013 throughDecember 2020.The authors thank OlivierBlanchard, MadonaDevasahayam, MahmoudEl-Gamal, Sean Hagan, CullenHendrix, Barbara Karni, DiegoLopez, Steve Weisman, andEva Zhang for their commentsand support.

PB 21-3 FEBRUARY 2021In 2008, representatives of the International Monetary Fund (IMF), theprincipal SWFs, and the major host countries to SWF investments drew up andpublished a set of principles and best practices—the Santiago Principles—forthe governance, transparency, and accountability of SWFs.4 The formulation ofthe Santiago Principles was influenced by the first SWF scoreboard in 2007–08,which was modified slightly for the 2009 scoreboard after the principles werepublished. The representatives of funds that participated in drawing up theSantiago Principles, or formally Generally Accepted Principles and Practices(GAPP) of SWFs released in October 2008 (Truman 2010), established theInternational Forum of Sovereign Wealth Funds (IFSWF).This Policy Brief presents the scores for 64 SWFs on the 2019 scoreboardand discusses the evolution of the universe of SWFs over time and the growthof their assets under management. It shows that the average scores continuedto improve. New funds have emerged—many of them government holdingcompanies or strategic investment funds—but the growth of assets undermanagement by SWFs has slowed, in some cases partly because of withdrawalsto help to finance expenses related to the COVID-19 pandemic, raising questionsabout their future role. The Policy Brief also compares the scoreboard resultswith simulations of the Santiago Principles and a Governance, Sustainability, andResilience (GSR) scoreboard recently developed by other researchers.RESULTS OF THE 2019 SWF SCOREBOARDThe scoreboard is based on publicly available information—from fund websites,annual reports, and ministries of finance, and other public sources such as IMFreports. Most of the information used in this scoreboard is from 2019, becausefunds tend not to release their annual reports for a given year until the secondhalf of the following year, at the earliest.The scoreboard has 33 elements, which are equally weighted and translatedinto a percent of zero to 100. Each element is scored on a 0–1 scale, with partialscores in quarters for some elements. In this and previous updates, we startfrom the previous SWF scoreboard and look for improvements. We do notsystematically check implementation of policies.The number of funds included in the SWF scoreboard analysis increasedby 73 percent since the first scoreboard, rising from 37 in 2007 to 64 in 2019.The composition of that universe also evolved. SWFs deriving their resourcesfrom oil and gas revenues represented 62 percent of all SWFs in 2007; by2019, their share had dropped to 45 percent. The share of funds derivingresources from other natural resource revenues remained about the same, at16–17 percent over the dozen years. The increase in the number of SWFs camedisproportionately from SWFs funded from budget revenues and from newgovernment holding companies, such as Singapore’s Temasek and France’s4The purposes and development of the Santiago Principles are explained in Das, Mazarei, andStuart (2010).2

PB 21-3 FEBRUARY 2021BPI France Investissement.5 SWFs funded by oil and gas revenues accountedfor 66 percent of the 2.6 trillion of assets under management in the firstscoreboard and 54 percent of the 8.1 trillion in the fifth scoreboard, even thoughseveral SWFs funded from oil and gas revenues have ceased to exist. Sevenof the 10 funds included in at least one of the first four scoreboards that werenot among the 64 funds in the fifth scoreboard were financed by oil and gasrevenues, including 3 from the United Arab Emirates (UAE), 2 from Venezuela,and 1 from Oman.6Table 1 presents the results of the 2019 SWF scoreboard.7 The average scorefor all 64 funds is 66. The range is 11–100. For the first time, a fund (the NorwayGovernment Pension Fund–Global) scored a perfect 100.8, 9The average score for all funds has increased steadily with each scoreboard,as well as the average for each group of funds introduced in successivescoreboards (table 2).10 The authorities of the home countries of each fund tell adifferent story to explain the increase in transparency and accountability on thescoreboard. In a few cases, the SWF scoreboard induced the government ownersand managers of the funds to increase their transparency and accountability.Two examples are the Norwegian Government Pension Fund–Global and theAbu Dhabi Investment Authority (ADIA). It is reasonable to conclude that theIFSWF, as the keeper of the Santiago Principles, also played a role, but the gapbetween the average scores of members and nonmembers of the IFSWF hasbeen essentially unchanged in successive scoreboards (as discussed below).The important point is that on average, funds increased their transparency andaccountability.5The fifth SWF scoreboard rated 36 funds that are members or associate members of theIFSWF. Sixteen of those funds are founding members of the IFSWF; 20 joined later. Newmembers include BPI France Investissement established in 2012, which is financed in part bythe Caisse des Dépôts et Consignations founded in 1816.6Oman’s State General Reserve Fund was included in each of the first four scoreboards. OnJune 4, 2020, the fund was combined with the Oman Investment Fund to become the OmanInvestment Authority. Not enough information is available on the new fund to allow us to scoreit in the fifth scoreboard.7The scores for each element for each fund are available at /pb21-3.zip, along with the scores on the other four SWF scoreboards.8The scoreboard is intended to provide a benchmark, not a prescription for perfection. Thecircumstances, environment, and operational cultures surrounding each fund are different; itis unreasonable to expect that one size would fit all. Some of the elements in the scoreboardapply more precisely to some SWFs than others.9Between the fourth and fifth scoreboards, we clarified its policy on leverage. In earlierscoreboards we missed the limit on leverage that the Norwegian SWF adopted in 2011.10The four funds introduced in the 2012 scoreboard have not shown much improvement.They are the funds of Angola, which largely accounted for the increase in the averagescore between the 2012 and 2015 scoreboards; Ghana, whose scores have been essentiallyunchanged for three scoreboards, at 45–47; Libya, whose fund has been frozen; and EquatorialGuinea, whose fund once was but is no longer a member of the IFSWF.3On average,sovereignwealthfunds haveincreased theirtransparencyandaccountability.

4PB 21-3 FEBRUARY 2021Table 1Results of the 2019 SWF scoreboardCountryFund nameScoreNorwayNorway Government Pension Fund–Global100New ZealandNew Zealand Superannuation Funda94United StatesPermanent Wyoming Mineral Trust Fund93ChileEconomic and Social Stabilization Fund92AzerbaijanState Oil Fund of the Republic of Azerbaijana92CanadaAlberta Heritage Savings Trust Fund91Timor-LestePetroleum Fund of Timor-Lestea91ChilePension Reserve Fund89United StatesAlaska Permanent Fund Corporationa88AustraliaFuture Funda87United StatesNew Mexico State Investment Council87IrelandIreland Strategic Investment Funda85KoreaKorea Investment Corporationa85PalestinePalestine Investment Funda85NigeriaNigeria Sovereign Investment Authoritya83United StatesAlabama Trust Fund82PanamaFondo de Ahorro de Panamaa, b82Trinidad and TobagoHeritage and Stabilization Funda81SingaporeTemasek Holdings79AngolaFundo Soberano de Angolaa77AustraliaNSW Generations Fundb77SpainCOFIDESa, b77United States(Texas) Permanent University Fund77United Arab EmiratesMubadala Investment Companya75ChinaChina Investment Corporationa74FranceBPIFrance Investissementa74FranceCaisse des Dépôts et Consignations74Table continues