The Abu Dhabi Investment Authority, established in 1976, is the largest sovereign fund, with assets estimated at $500 billion to $875 billion, according to a widely cited analysis last August by Edwin M. Truman, senior fellow at the Peterson Institute for International Economics in Washington, D.C. Next is the $100 billion to $330 billion controlled by the Government of Singapore Investment Corp., founded in 1981. Singapore also runs $108 billion Temasek Holdings, started in 1974. Early in December, Temasek said it would provide $1 billion to a private-equity
fund set up by Goldman Sachs Group (GS Quote) of the U.S. to invest in China.
, they are going to start having price effects," he says.
Reinvesting Oil Profits, for Now
Most of the sovereign funds that are soaring in size have rising oil prices to thank. In fact, it's no coincidence that the biggest funds belong to oil-producing states, which are using the funds to reinvest oil profits so there will be new sources of income when the oil is gone, Marston notes, adding that Norway's fund, considered the poster child of well-run funds, was established to reinvest North Sea oil profits. "They basically said, 'Well, we want to put some wealth aside rather than distribute it immediately, so we will have an annuity
for the Norwegian people to make up for the fact that the oil is running out."
Countries that build up foreign-exchange
reserves typically invest them in liquid assets
like U.S. Treasuries. But once reserves are big enough to cover any short-term needs like currency intervention, countries feel they can afford to tie money up on long-term investments that offer better returns, says Wharton finance professor Richard J. Herring. "If you have your liquidity
needs taken care of, then you start thinking about making longer-term investments. It's a very natural thing."
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