What is a sovereign wealth fund and how does it work?

Open this photo in gallery:Governments often use excess profits from oil and gas revenue streams to fund sovereign wealth funds. Countries like Norway, China and the United Arab Emirates have seen economic benefit from these investments.OLE BERG-RUSTEN/AFP/Getty ImagesShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountOriginally a way for countries to safeguard – and grow – surplus revenue, sovereign wealth funds have evolved since they originated in the 1950s. Many countries, including Norway, China and the United Arab Emirates, have seen economic benefit from investing in their own established sovereign wealth funds over the years.On Monday, Prime Minister Mark Carney announced the establishment of Canada’s inaugural sovereign wealth fund, the Canada Strong Fund. Details regarding the fund are continuing to develop.What is a sovereign wealth fund?A sovereign wealth fund (SWF) is a government-owned investment vehicle, typically funded via government reserves and surplus revenues, that invests in financial assets including stocks and bonds, as well as real assets such as infrastructure and real estate. Sovereign wealth funds are typically independently managed by a board of directors.Opinion: To make the Canada Strong Fund work, look to Quebec’s example, not Norway’sWhat is the Canada Strong Fund?The Canada Strong Fund is Canada’s first ever sovereign wealth fund. It will begin with an initial endowment of $25-billion from the federal government, and was described by Mr. Carney as a national savings and investment account designed to grow wealth for future generations.The fund will be professionally managed, operating as an independent Crown corporation, with the government holding consultations over specific details of the fund. The fund is linked to planned federal support for nation-building projects, including ports, mines and trade and energy initiatives.How does a sovereign wealth fund work?Sovereign wealth funds work by taking in government reserves and excess revenue, funnelling that money into investment assets including stocks, bonds, real estate and infrastructure with the goal of creating significant long-term returns. The resulting funds can be used to stabilize a country’s economy, finance industry development, act as a savings pool for future generations and more.Where does the money come from to finance the fund?Governments often use excess profits from oil and gas revenue streams to fund SWFs. Fiscal budget, trade and foreign currency surpluses can also be used. Which other countries have a sovereign wealth fund?Norway’s sovereign wealth fund, the Government Pension Fund Global, is one of the most notable examples. Established in 1990 to house excess oil revenue, it invests in equities, bonds, real estate and infrastructure including renewable energy and solar projects. At the end of 2025, the fund’s total value exceeded US$2.2-trillion, making it one of the largest SWFs in the world.The China Investment Corporation is one of the country’s several SWFs. It was established in 2007 to manage China’s foreign exchange reserves and has been valued at around US$1.35-trillion. The fund invests in assets including public and private equity, bonds, hedge funds, real estate and infrastructure and more.Abu Dhabi, the largest of the United Arab Emirates, also operates a sovereign wealth fund called the Abu Dhabi Investment Authority. Established in 1976 and funded primarily from the emirate’s oil…

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