These funds’ management is separated from official management of foreign currency reserve. The aim of SWFs among others is to manage government wealth so that funds do not remain static thus balancing investment with savings. The SWFs as a government-based investment strategy may involve the buying of shares in profit making organization or the taking over of a foreign based company, foreign direct investment, purchase of stakes in financial firms, long-term government bond amongst others. This process has resulted in a well recognized trend in monetary trade, foreign currency policy, and new international finance strategies. But, much debate subsists on the legitimacy of these policies and their ethical parameters. There are considerable economic and social issues associated to fairness of competition and possible political non-commercial hidden agenda, which come to the surface seriously. Various institutions are starting to feel greatly concerned by the issue of SWFs especially because these investments are taking considerable proportions.
While many countries are facing important turnabouts and recession in their economy others are continuously sustaining their considerable economic rise. Some major states are facing recurrent financial crises due to external parameters which are out of their control for instance the oil crisis, financial globalization which results in accumulation of wealth in term of foreign currencies and financial asset by some countries. While there was the 800 billion U.S dollars deficit in 1996 in the United State’s current account, export-oriented economies of South East Asian countries were enjoying incessant growth. It is universally recognized thus, that the subsequent rise in SWFs is a result of large global macroeconomic impairment and imbalances.
These major discrepancies have resulted in some countries possessing high relative ratio of foreign currency reserve which has boosted considerably the event sovereign wealth