Sovereign Wealth Funds - A Decision Scorecard (DSC)

Sovereign Wealth Funds (SWFs) with combined asset under management of around $4.8 Trillion have emerged as major power in the financial world. The dominant effect of these funds in International finance was on display during the recent recession of 2008. The emergence of these funds has also resulted in renewed interest in academic research primarily focused on the portfolio and investments strategies of these funds. However, literature which has empirically analyzed the decision variables impacting the establishment of these funds is limited. Every country with its unique macro-economic conditions has its own reasons for establishing a Sovereign Wealth Fund. We have identified and collaborated the list of 31 variables that may affect establishment of Sovereign Wealth Fund. The identified variables were later distinguished under 6 decision streams. These variables were then applied to the selected 17 Sovereign Wealth Funds to analyze their static state at the time of creation of individual fund. From the analysis of the these variables for different SWFs we argue, that contrary to the popular literature, Current Account Surplus, Fiscal Surplus and Currency Crisis are not the key decision variable affecting the establishment of Sovereign Wealth Funds. We analyzed that 10 out of 17 i.e.58.8% of the countries were running current account deficit at the time of establishment of fund while only 1 fund was established post currency crisis. Peer pressure has emerged as surprising factor in establishment of SWF with 11 out of 17 or 65% of the analyzed funds experiencing the establishment of similar type of fund by trade partners within last 3 years. However, in-line with the popular literature, all but 4 countries were complying with at least one of the four traditional matrices of reserve adequacy