A highlight from Are Sovereign Wealth Funds the best way of safeguarding the future?
Saving for a rainy day used to be a popular notion if not always practice and one economic measure used by many governments to help them plan ahead and manage future. Economic shocks is what's called a sovereign wealth fund on paper at least sovereign wealth fund. Same tailor made for the sort of economic crises. Many countries are now facing so how they function during covid nineteen and in broader terms. Are That south thing today. Hello antony fennell here. Welcome to future tents. Let's start with the definition. Here's dr angela. Combine a former oxford academic and all through the book citizens wealth said the first sovereign wealth fund that we know of dates back to eighteen sixteen set up in france often. Napoleon had raided the coffers and the french state was very came to make sure that there was a pot of money that could be quarantined and protected from its political leaders today. We've got around one hundred. Fiftieth funds globally managing about nine trillion dollars in assets and. There's some disagreement over the precise definition but essentially these are government owned and controlled pots of wealth that are invested in financial assets to generate a return and support different public policy goals over the past thirty years. The government of norway has been saving lots of money for citizens. Norway manages the world's largest sovereign wealth fund. This fund belongs to every norwegian citizen with over five million celebrate with sovereign wealth fund is probably norway's. It's now worth around. one point. Four trillion dollars am was originally set up in the nineteen nineties to ensure the country of just over. five million. People didn't blow the riches to be had from their vast oil deposits. Its approach proved globally influential according to duncan mccain a senior researcher with the new economics foundation in the uk. That when you're a small country and suddenly you discover unique. Huge amounts of natural resources to try and spend that within your domestic economy straight away would create problems domestically. It's a great inflation things like that. Which would be hugely problematic. Those are very sensible thing to do. You think you'll depleting a non-renewable resource rather than spend all of that money in the generational too when you're actually extracting it. It makes a lot of sense to keep some of that money so that future generations can also benefit from that and countries that don't have natural assets in ne'er economy are also jumping onto this. And so you'll see. Being many created now with kind of balance of payments surplus country like china which exports so much more than import bill up a huge preserves a foreign currency and started putting those two sovereign wealth funds. But also there are countries exploiting the very very cheap borrowing out there if a state can go and borrow less than one percents but at into a fund at hope to make maybe a four or five percents return on that money. That's potentially a very good way of starting up. A number of european countries but countries around the world kind of opting for that route. You also have kind of the privatization which is obviously how. Australia's funded the star of the future fund in australia was through the privatization of telstra. So absolutely we gang way beyond just thinking about what to do with the proceeds of natural resource extraction and thinking about these proactively in how we might use some of the other large sums of money that come through the government coffers to put away for future generations rather than just spending it all today and just picking up on the last bit future generations. I know there are the significant variation between the way in which funds structured and their purpose. But do they have to be future. Focused is that one of the characteristics of a sovereign wealth fund. I mean i think that's really one of the huge potentials that they have and again the best ones are really thinking about that future aspect i think many will really set up and indeed many that a manage still today can be seen much more in the light of you know kind of global strategic power being exercised via these huge funds as they go in and buy kind of key asset the definitely a group of sovereign wealth funds. That are really more about geopolitical. Power at paul string and taking assets raw the van necessarily about the future but some of the most exciting ones you can think of the alaska permanent fund. You could think of the norwegian funds for the future funding australia and the superannuation funds in new zealand in a role explicitly thinking about future and targeting the future. I think. I think the biggest challenge for setting up. These things is the