--- title: "Sovereign Wealth Fund (SWF) | Altss Glossary" description: "A sovereign wealth fund (SWF) is a special-purpose investment fund or arrangement owned by a government and created for macroeconomic purposes, which…" canonical: "https://altss.com/glossary/sovereign-wealth-fund" --- Glossary · Allocator type # Sovereign Wealth Fund (SWF) Also called: state investment fund A sovereign wealth fund (SWF) is a special-purpose investment fund or arrangement owned by a government and created for macroeconomic purposes, which manages public assets to meet financial objectives and invests at least partly in foreign financial assets. Publisher: Altss LLC Published 2025-12-24 Content modified 2026-10-01 ALTSS-ALLOC-014 When a state has money it does not need to spend now, such as commodity revenues, budget or trade surpluses or privatisation proceeds, it may place part of it in a dedicated fund and invest it. What the fund is for decides how long its horizon is and how much illiquid risk it can take: smoothing the budget, saving for future generations, earning more on reserves, financing development or pre-funding future pension costs. ### Formal definition The Santiago Principles (International Working Group of Sovereign Wealth Funds (IWG), October 2008, Appendix I) define SWFs as special purpose investment funds or arrangements, owned by the general government, created for macroeconomic purposes, that hold, manage or administer assets to achieve financial objectives and employ investment strategies that include investing in foreign financial assets. The definition excludes foreign currency reserve assets held by monetary authorities for traditional balance of payments or monetary policy purposes, operations of state-owned enterprises in the traditional sense, government-employee pension funds, and assets managed for the benefit of individuals. ## The three defining elements Appendix I of the Santiago Principles names three elements, and all must be present: 1. **Ownership.** The fund is owned by the general government, which includes central and subnational governments, so a state- or province-level resource fund can qualify. 2. **Investments.** Its strategies include foreign financial assets. A fund that invests solely in domestic assets is outside the definition, whatever it calls itself. 3. **Purposes and objectives.** It is created for macroeconomic purposes to invest government funds for financial objectives, with liabilities that are at most broadly defined. That allows a wide range of strategies over medium to long horizons and distinguishes an SWF from reserves held only for balance of payments needs. SWFs are commonly funded from balance of payments surpluses, official foreign currency operations, privatisation proceeds, fiscal surpluses or commodity export receipts. The principles note that reserve assets on a central bank's books can be part of an SWF if they are held for purposes other than balance of payments, for example intergenerational saving. ## Types by policy purpose The Santiago Principles describe SWFs as a heterogeneous group and identify these purposes: - **Stabilisation funds** insulate the budget and economy from commodity price swings. They serve short- to medium-term objectives, usually have shorter horizons and are typically funded by revenue rules and drawn down by triggers such as a commodity price falling below a set level. - **Savings funds for future generations** convert non-renewable resources into a diversified portfolio, aim for higher returns over a long horizon and are typically funded from budget surpluses. - **Reserve investment corporations** are set up to raise the return on reserves; their assets may still be counted as reserve assets. - **Development funds**, which the principles list among SWF types; one that invests only in domestic assets falls outside the definition. - **Pension reserve funds** without explicit pension liabilities save for future public pension costs. Purposes can overlap and change: the principles cite stabilisation funds that evolved into savings funds as reserves outgrew short-term needs. Treating every SWF as a patient, multi-decade investor is therefore wrong; horizon follows purpose. ## Governance and disclosure under the GAPP The Santiago Principles set out 24 generally accepted principles and practices (GAPP) in three areas: legal framework, objectives and coordination with macroeconomic policy; institutional framework and governance; and investment and risk management. They were agreed in 2008 by an International Working Group of 26 International Monetary Fund (IMF) member countries with SWFs, with the IMF facilitating and acting as secretariat, and are now published by the International Forum of Sovereign Wealth Funds (IFSWF). The GAPP are voluntary and subject to home-country law. Among them: the policy purpose should be clearly defined and publicly disclosed (GAPP 2); funding, withdrawal and spending rules should be disclosed (GAPP 4); governance should separate owner, governing bodies and management to support operational independence (GAPP 6 and 9); relevant financial information should be published (GAPP 17); and investment decisions should aim to maximise risk-adjusted financial returns on economic and financial grounds, with any other considerations disclosed (GAPP 19). How fully each fund applies them varies. ## How SWFs invest in private markets Funds with savings or long-horizon reserve-investment purposes are the SWFs most active in private markets. Common routes are primary commitments to private equity, [infrastructure](https://altss.com/glossary/infrastructure-investing), real estate and private credit funds; [co-investment](https://altss.com/glossary/co-investment) alongside managers; and [direct investment](https://altss.com/glossary/direct-investment), sometimes through internal teams or joint platforms with managers. Stabilisation funds, which may need to pay out at short notice, hold mostly liquid assets. For a manager, an SWF's capital comes from a state, so commitments can raise questions in the investor's home country and in the countries where portfolio companies sit. The Santiago Principles were written partly to support trust between SWFs and recipient countries that apply their own investment-screening rules. Each SWF is usually a distinct legal vehicle; a state may own several with different purposes. ## Not the same as - Public Pension Fund: Government-employee pension funds are excluded from the SWF definition; a pension reserve fund without explicit pension liabilities is included. - Development Finance Institution: A development finance institution (DFI) lends to and invests in projects under a development mandate, usually as a bank or development agency; it is not a vehicle for investing a state's surplus wealth. ## How it is classified - Apply the three Santiago elements: general-government ownership, foreign financial assets in the strategy, macroeconomic purpose. - Classify a domestic-only state investment vehicle as a government investment vehicle related to its state, not as an SWF, unless it also invests abroad. - Classify a pool that invests a government's operating cash or local-government deposits as a government investment vehicle, not an SWF: it is not created for the macroeconomic purposes in the Santiago definition. - Record each legal vehicle separately and record its purpose type from its own legislation or charter, not from press descriptions. ## Common mistakes - Describing every SWF as a long-horizon investor. Stabilisation funds and reserve investment corporations can have short horizons and high liquidity needs. - Counting a public employees' pension fund as an SWF. The Santiago definition excludes government-employee pension funds. - Counting a central bank's foreign exchange reserves as an SWF. - Calling a fund that invests only at home an SWF without qualification. The definition requires foreign financial assets. - Assuming SWF decisions are political by default. GAPP 19 says decisions should rest on economic and financial grounds with other considerations disclosed; practice varies by fund. - Treating several funds owned by one state as one investor. Each vehicle has its own purpose, governance and portfolio. ## Edge cases - A subnational government's resource fund can be an SWF because general government includes subnational governments. - Reserve assets on a central bank's balance sheet can form an SWF when held for purposes other than balance of payments, such as intergenerational saving. - A fund's purpose can change over time, for example from stabilisation to saving, changing its appetite for illiquid assets. ## Questions ### Are the Santiago Principles binding? No. They are a voluntary set of principles that IWG members support and have implemented or aspire to implement, subject to each country's laws. ### Is a sovereign wealth fund the same as a country's foreign exchange reserves? No. Reserves held by a monetary authority for balance of payments or monetary policy purposes are excluded from the definition, although a reserve investment corporation or reserves held for other purposes can be an SWF. ## External standards | Standard | Relation | Note | | --- | --- | --- | | Santiago Principles (GAPP), IWG 2008 (Appendix I definition; GAPP 1-24) | equivalent | The definition used on this page is the Santiago definition; the GAPP are voluntary. | ## Sources 1. [Sovereign Wealth Funds: Generally Accepted Principles and Practices ("Santiago Principles")](https://ifswf.org/sites/default/files/santiagoprinciples_0_0.pdf). International Working Group of Sovereign Wealth Funds, IWG / IFSWF, October 2008. Status: Current (24 GAPP) (checked 2026-10-01). Introduction (pp.1-2); Objective and Purpose (p.3); Nature and Structure (p.5); GAPP list (Part I, pp.7-8); GAPP 2 commentary (pp.12-13); GAPP 4 commentary (pp.13-14); GAPP 19 commentary (p.22); Appendix I, paras 1-4 and fn. 41-42 (p.27) — supports: Definition, exclusions, three key elements, funding sources, reserves on central bank books; types of SWF by purpose, horizons, funding and withdrawal rules, evolution of purposes; IWG membership and IMF role; voluntary nature; three areas; GAPP 2, 4, 6, 9, 17, 19 ## Related terms 5 terms - [Direct Investment](https://altss.com/glossary/direct-investment) - [Co-Investment](https://altss.com/glossary/co-investment) - [Infrastructure Investing](https://altss.com/glossary/infrastructure-investing) - [Pension Fund](https://altss.com/glossary/pension-fund) - [Institutional Investor](https://altss.com/glossary/institutional-investors) ## Referenced by 1 term - [Core Infrastructure](https://altss.com/glossary/core-infrastructure) ## Concept record Concept ID ALTSS-ALLOC-014 Classification Allocator type Topics Institutional investors Version 2.0.0 Last reviewed 2026-10-01 Structured data [JSON](https://altss.com/reference/concepts/sovereign-wealth-fund.json) ## Canonical URL https://altss.com/glossary/sovereign-wealth-fund