Charting The Rise of Commodity Funds

Ashby Monk

I came across a neat little chart while trolling for news on SWFs, so I thought I’d repost it. It’s remarkable to see how many new commodity based SWFs have popped up over the past few decades. That being said, the title of the chart seems off to me. It’s the other way around, no?

1 Response to “Charting The Rise of Commodity Funds”

  1. 1 Rien Huizer June 10, 2010 at 6:11 am

    I think that a very large SWF would offer a very large oil (or other commodity) producer with some autonomous pricing power (or the capacity to organize and discipline a cartel)to carry out pricing strategies based on curtailing supply (either by reducing production or accumulating product). One of these strategies might be to lift prices to levels where less well endowed producers (low per capita revenues, high production cost) would find it advantageous and affordable to support a cartel, thus creating a positive feedback cycle. This would work especially well if world consumption had strong upward momentum. This does of course not suggest simple causality of the type that SWF growth causes oil price growth. But sometimes this tail may be wagging the dog.

    Another matter is of course that states are not the only commodity wealth accumulators that can use “wealth” for pricing strategies based on temporary output variation (or even the threat thereof, or postponement of capacity increases, mothballing, etc). Mining companies aim for high levels of financial strength just in order to do this.

    What the graph may illustrate is that SWFs are potentially at odds with (theoretic) macroeconomic efficiency by enabling a variety of protectionist or oligopolistic practices. To what extent the state intent for such behaviour is present and financial capacity meaningful, is the real question. It appears that the state commodity funds are not as harmful as the funds that result from currency manipulation and/or overtaxation of consumers.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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