Who is the King of SWFs?

Ashby Monk

I wonder if you asked a US Senator or Congressman which country sponsored the most sovereign funds in the world, what would he or she say? China? No doubt it would be one of the top responses, as it has three well-known funds (CIC, SAFE, and NSSF) and a variety of lesser known funds (CADF). How about Russia? That would probably be a popular guess too with the Reserve Fund, National Welfare Fund and the new Russian Direct-Investment Fund. Those with a bit more knowledge, however, would likely say the United Arab Emirates; with ADIA, ADIC, EIA, IPIC, Mubadala, RAKIA, and a couple of other hard-to-define entities, it’s a fair bet that UAE is the world leader in the number of sovereign funds. But how many US policymakers would ever say that the country with the most sovereign funds in the world is…the USA?

Well surprise, US policymaker, there’s a solid case to be made that the United States is in fact the king of SWFs. No, I’m not talking about public pension funds; I’m talking about funds that would meet the IMF’s definition of a SWF. Impossible? Not so. US states are big into permanent and rainy day funds. It’s just that these funds have been hanging out under the radar. For example, the SWFI only managed to count three US funds. But, trust me, they’re more out there. For proof I refer you to this report on the Alaska Permanent Fund‘s webpage from 2008. I only came across this for the first time yesterday, but I realized in reading it that it listed some US funds that I had never even heard of. In addition, I realized that this report didn’t manage to find all of the US funds that I know about. Perhaps (since the US is such an outspoken proponent of sovereign fund transparency) the US funds are soooo transparent that most of the world simply looked right past them. In addition to flagging up a bunch of new American funds, the APF report also makes the remarkable claim that the State of Texas sponsored the very first SWF in the world (in the 1800s)! (Sorry Kuwait!)

So, without further ado, here’s a list of American sovereign funds that combines the APF’s report with my own knowledge. And based on the fact that these funds keep popping up, I’m guessing this isn’t even a complete list:

  • Alabama: The Alabama Trust Fund was set up in 1986 and acts as a sort of permanent fund in anticipation of the eventual decline of oil and gas royalties to the state.
  • Alaska: The Alaska Permanent Fund was set up in 1976 with a spending and saving mandate. In 1980, Alaska set up the APF Corporation to manage all the Fund’s investments.
  • Louisiana: The Louisiana Education Quality Trust Fund was set up in 1986 to save and invest off-shore revenues for education. The LEQTF has both a Permanent Fund and a Support Fund as subsidiaries.
  • Montana: The Montana Permanent Coal Tax Trust Fund (PCTTF) was set up in 1978. The PCTTF actually has six (!) sub-funds, of which the state’s Permanent Fund is the largest. The Montana Board of Investments manages the combined assets.
  • New Mexico: The State actually has four different permanent funds that are all jointly managed by the State Investment Council (which is itself larger than the New Zealand Superannuation Fund). Apparently, the Land Grant Permanent Fund goes back to 1910!
  • Oklahoma: The State recently approved a new rainy day fund that will see gross production tax collections above a three-year average sequestered in the new stabilization fund. This fund will join the pre-existing “Rainy Day Fund” in Oklahoma, which already has around $600 million.
  • Texas: Remarkably, the State of Texas has two permanent funds going back to the 1800s! The Permanent School Fund (1854) and Permanent University Fund (1876). These are likely the first sovereign type funds ever created. The State also has a Rainy Day Fund that was set up in 1988 with the idea of sequestering all oil and gas production taxes exceeding 1987 levels. It’s worth roughly $10 billion today.
  • Wyoming: The Permanent Wyoming Mineral Trust Fund was established in 1974 to receive the state’s 1.5% excise tax on coal, petroleum, natural gas, oil shale, and other minerals. The Wyoming State Loan and Investment Board manages the funds (along with the assets from several other state permanent funds).

For a fascinating graphic of sovereign fund creation, click this remarkable timeline:

An interesting thing to point out is that many of these funds are tied to education, much in the same way sovereigns today are often tied to pensions or other contingent future liabilities.

In sum, it’s clear the American states have found these funds extremely useful in helping to manage their resource revenues over time. Moreover, Ben Bernanke’s recent pronouncements about the utility of these types of funds suggests that more US states may become sponsors in the coming years. And given that some of these funds have been around for over a 100 years, the “permanent” moniker seems to have legitimacy. In other words, they probably aren’t going anywhere.

All this leaves me with a final thought for US policymakers: If you find yourself tempted to express concern over the rise of SWFs around the world, perhaps you should first ask yourself why the United States has more funds than any other country, and why the United States was perhaps the first country in the world to set up such a fund?

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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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