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Sovereign Wealth Funds (SFWs) are investment funds that respond to 3 main criteria:

  • They are owned or managed by a Government
  • Financial assets are managed with long term perspective
  • Their investment policy have specific objectives, such as the stabilization of the economy, the savings for future generations or the diversification of the GDP

Their resources come from an excess in current account accumulated either from the exportations of raw materials or from the national savings surplus. Some funds also benefit from a part of Central Banks foreign exchange reserves.

 

There are now more than 50 active SFWs in the world, the first one being Abu Dhabi Investment Authority, with more than USD 600 billion Assets Under Management (AUM), followed by Norway’s biggest pension fund the Government Pension Fund and finally, China’s SAFE investment Company.

One of the first African sovereign funds, the Pula Fund, was launched in 1994 by Botswana. Its goal was to save, a part of the revenues generated by the exportations of diamonds for future generations. Several African countries then followed the lead with Libyan Investment Authority being the most powerful ($70 billion AUM). Africa now counts than 7 major SFWs in activity.

 

This document is an overview of existing African SFWs, or that are under development, by focusing mainly on the reasons that lead to their creation, their origins, their financing and investment strategy aspects. This document will be updated as and when new information will be known.

 

SFWs being known for their lack of transparency (pointed out during and after the subprime crisis), two rating models were created to tackle this issue: The transparency Index, by the Sovereign Wealth Fund Institute, and the Truman Index developed by the Economist Edwin Truman.

 

Linaburg-Maduell Transparency Index

The Linaburg_Maduell Transparency Index or Transparency Index is an index rating the transparency of SFWs, developed by Carl and Michael Linaburg-Maduell, co-founders of the Sovereign Wealth Fund Institute.

The index is based on 10 evaluation criteria that portray the transparency of sovereign public funds, each of the criteria assigning 1 point or 0 to the rating of a fund, depending on whether the criteria is met or not. The minimum rating for a fund is 1, however the Sovereign Wealth Fund Institute estimated at 8 the minimum rating for a fund to have an acceptable level of transparency.

 
Points Linaburg-Maduell Transparency Index fundamentals 
+1  The fund must provide its track record, the reason of its creation, where the money comes from and how the fund is governed
+1  The fund must provide an annual report up-to-date
+1  The fund must provide the percentage of participation and geographical distribution
+1  The fund must provide details on its assets under management and its performances
+1  The fund must provide its ethical guidelines and its investment  & participation policy
+1  The fund must provide its objectives and strategy
+1  If applicable, the fund must provide information regarding other subsidiaries and contacts
+1  If applicable, the fund must provide information on external managers
+1  The fund must have an internet web mail
+1  The fund must provide information regarding the headquarter, address & Contact

Ratings are updated on a regular basis as new information is provided on the fund.

 

Truman Index

Unlike the Linaburg-Maduell Transparency index that only measures the transparency of SWFs, the Truman index is based on 25 questions that evaluate the level of transparency, the structure, the management, and the accounting.

A closed YES or NO questionnaire attributes 1 point if the answer is YES and 0 if the answer is NO. Some answers may give intermediary point (0.25, 0.50, 0.75), 25 points being the maximum.

 

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