The Growing Role Of Sovereign Wealth Funds In Managing Foreign Exchange Assets

Abstract

Nowadays, almost all countries possess foreign currency reserves that are necessary for making both expected and unforeseen transfers abroad, specifically payments for imported goods and settling foreign debt. Looking back, these reserves were held in precious metals, dollar deposits, and other savings and debt instruments in convertible currencies, and were managed by the central banks of the respective countries. However, in recent years, some countries, mainly developing ones, have accumulated reserves far above the necessary minimum that guarantees short-term payments and somewhat provides resources against unforeseen negative shocks. These surpluses are one of the reasons for the emergence of a new type of institutional investors in the form of sovereign wealth funds. Over the past twenty years, SWFs have experienced tremendous growth and therefore fall into the sights of fund managers and academic researchers. At the beginning of 2025, the assets they manage exceed 13.4 trillion dollars and are approaching the size of the foreign exchange reserves maintained by central banks, amounting to 16.8 trillion dollars. The object of analysis is the structural dynamics of the assets of sovereign wealth funds, public pension funds and foreign exchange assets of central banks. For this purpose, we use a coefficient for the direction of structural dynamics and aggregated data for each unit of the structure for the period 2000-2024.