How should we define a Sovereign Wealth Fund?

This question is posed by the SWF Institute in a recent post.  The Institute offers the following definition:

A Sovereign Wealth Fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets. These assets can include: balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports. Sovereign Wealth Funds can be structured as a fund, pool, or corporation. The definition of sovereign wealth fund exclude, among other things, foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, state-owned enterprises (SOEs) in the traditional sense, government-employee pension funds, or assets managed for the benefit of individuals.
Some funds also invest indirectly in domestic state-owned enterprises. In addition, they tend to prefer returns over liquidity, thus they have a higher risk tolerance than traditional foreign exchange reserves.

This definition raises some issues.  First, are these funds necesssarily "state-owned", i.e. by national governments?  The SWF Project, in a recent article, Who is the King of SWFs?, identifies a number of qualifying funds at the individual state level.  Further, is an SWF defined by the nature of its target investments, in this case restricting SWFs to those that own financial assets and financial instruments (though generously including real estate under that umbrella and leaving infrastructure somewhat out of the picture). 

In the search for a brief definition most sources, including the definition above, feel the need for some explanatory material, such as what types of assets should be excluded, e.g. central bank reserves.  Is is possible to find a better definition?  Unsurprisingly, the experts have been working on the subject.

Wikipedia offers the following definition:

A sovereign wealth fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments.

The Santiago Principles provides a fairly general definition,

Sovereign wealth funds (SWFs) are special purpose investment funds or arrangements that are owned by the general government.

The European Central Bank, in its Occasional Paper No 91, July 2008, suggests:

Sovereign wealth funds (SWFs) [are] broadly defined as public investment agencies which manage part of the (foreign) assets of national states.

Although there exists no commonly accepted definition of SWFs, three elements can be identified that are common to such funds: First, SWFs are state-owned. Second, SWFs have no or only very limited explicit liabilities and, third, SWFs are managed separately from official foreign exchange reserves.

The International Monetary Fund, which has an interest in ascertaining what pools of money exist and who controls them in the context of international financial management and balances of payments, keeps to the definition in the Santiago principles:

SWFs are defined as a special purpose investment fund or arrangement, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer financial assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets.  SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.

And what is this 'general government' whereof the IMF speaks?  The European Central Bank provides this definition:

A sector defined in the ESA 95 as comprising resident entities that are engaged primarily in the production of non-market goods and services intended for individual and collective consumption and/or in the redistribution of national income and wealth. Included are central, regional and local government authorities as well as social security funds. Excluded are government-owned entities that conduct commercial operations, such as public enterprises.

So, there we are.  While there seems to be a focus on the assets and mentions of purposes, none of the definitions seems to capture the idea that sovereign wealth funds have beneficiaries.

The Sovereign Investor therefore offers its tuppenceworth with this definition:

A Sovereign Wealth Fund is a special purpose fund or arrangement set aside from official foreign exchange reserves and maintained by a central, regional or local government authority, whereby funds are invested at least partially in international assets over the longer term for the benefit of current or future generations. 

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