Sovereign Wealth Funds - the key to economic success?

Despite the prominent role of Sovereign Wealth Funds during the financial crisis, the Fund’s effect on the economy where it is established is an area where little economic research has focussed. But two things are clear; global trade imbalances and high commodity prices mean that Funds are getting bigger, and more and more countries are joining the clamour to start their own fund. PwC looks at whether a Fund has a material impact on the national which sets it up.

We analysed the historic performance of 51 countries over 30 years to see whether there was a material economic impact on the country which set it up. Overall our findings support the view that starting a new Sovereign Wealth Fund (SWF) is beneficial to the country which sets it up. And the recent clamour by countries to start new Funds may indeed be justified.

There were three key findings from our analysis:

  • Setting up a Sovereign Wealth Fund may help to reduce inflation.
  • Exchange rate appreciation may be lessened by a Sovereign Wealth Fund.
  • Sovereign Wealth Funds may help improve transparency in an economy.

Using our knowledge of macro economic trends and our econometric tool kit we can help Governments and nations to understand the opportunities and risk of establishing a Sovereign Wealth Fund their country.