The first sovereign wealth fund was set up by Texas to pay for schools
Sovereign wealth funds sound like a Gulf invention, but the idea began in 1854 with a Texas fund for public education. Kuwait launched the first national one in 1953 from oil money, and by 2021 such state investment pools held more than $10 trillion, big enough to worry governments about who controls strategic industries.
A sovereign wealth fund is a state-owned pot of money invested around the world in shares, bonds, property, precious metals, private equity and hedge funds. Most are fed by commodity export earnings or surplus foreign exchange held by a central bank. Unlike ordinary currency reserves, which are kept liquid for short-term stabilisation, these funds aim for long-term returns. The term itself is recent: the analyst Andrew Rozanov coined it in a 2005 article titled Who holds the wealth of nations?
The history is older than the name. Texas created its Permanent School Fund in 1854 and a university fund in 1876, the latter endowed with public lands the state kept under its 1845 annexation terms. The Kuwait Investment Authority was set up in 1953, before Kuwait's independence from Britain, and was valued at $853 billion in 2023. The tiny Pacific nation of Kiribati began its fund in 1956 from a colonial levy on phosphate exports used in fertiliser, and it has since passed $1.5 billion.
Governments usually create such funds when they have budget surpluses and little foreign debt, especially if they depend on exports like oil, copper or diamonds whose revenues swing wildly. Some funds double as war chests; Kuwait's managed surplus reserves during the Gulf War. Others, such as Singapore's Temasek and Abu Dhabi's Mubadala, partly aim to build their home cities into financial centres. China's funds, which entered world markets in 2007, are a notable exception to the commodity model, and a 2014 study even argued that many governments set up funds largely because their peers were doing it.
Their size makes them influential. Funds moved quickly to prop up markets early in the 2008 crisis, and assets grew from about $4 trillion to over $10 trillion between 2008 and 2021. Critics point to poor transparency about holdings and goals, and the United States passed a 2007 law partly to screen foreign state investment that might target strategic industries for political rather than financial ends.
Source: Sovereign wealth fund
