Hello, Sovereign Wealth Funds

By Melissa Securda

While scanning the Financial Times and the Wall Street Journal over the past few months, three words seem to appear more and more.  Sovereign Wealth Funds. 

Investopedia defines “sovereign wealth fund” as "pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens.” But basically, these funds are investment entities set up by foreign governments to manage surplus savings.

These types of funds have been around since the 1970s when oil-wealthy countries accumulated surpluses during the oil boom. Recently, they are on the radar because of their sheer size, their country of origin, and their purchasing power.

 

Just yesterday we learned of Abu Dhabi Investment Council (a sovereign wealth fund) in discussions with Prudential Real Estate investors to pay $800 million for a 75 percent share of Manhattan’s iconic Chrysler Building. A fund from Italy is in negotiations for a stake of another New York Landmark – the Flatiron Building.

It’s likely we will hear more reports like these because sovereign wealth funds have cash and the exchange rate in their favor. Over the next few years, we should start to see different countries investing more in foreign markets. Look to China and Russia as powerful forces which will fully develop soon.