Sovereign Wealth Fund
Sovereign wealth funds (SWFs) are countries’ current account surpluses that accumulate beyond what is needed for their immediate purposes; the funds are designed to manage and put these extra resources to work.
In all but name, SWFs have been around since at least the 1950s. All that’s changed dramatically over the last 10-15 years is their name and the massive increase in their total size worldwide. In 1990, sovereign funds held, at most, $500 billion. The International Monetary Fund (IMF) estimates their worth somewhere between $2 trillion and $3 trillion, The International Monetary Fund estimates that SWFs have the potential to reach $10 trillion by 2012.
At present, more than 40 countries have established formal SWFs and at least six more have expressed desire on some level to establish one. The current balance sees the top five funds account for about 70% of the total assets held in SWFs, and over half of these assets are in the hands of countries that export significant amounts of oil and gas, such as Norway, Qatar, and Abu Dhabi. In terms of geographical distribution, about one-third of total assets are held by Asian and Pacific countries, including Australia, China, and Singapore . SWFs are really a substitute for central bank reserves; both are owned by the nation state, and it makes economic sense that once reserves are at an adequate level to try to get a better return on them. So they can be switched from short-term US Treasury securities, their most common home, into shares and longer-term bonds .
Finally, there is support for the principle of SWFs in organizations such as the International Monetary Fund (IMF), which “has strongly encouraged exporters of nonrenewable resources to build up exactly such funds in preparation for a "rainy day". In short, sovereign wealth funds are major state-owned players of the 21st century .