The International Monetary Fund (IMF) has said the growing presence of sovereign wealth funds (SWF) would significantly impact the pattern of global capital flows, asset prices, and financial stability.
The Government of Singapore Investment Corporation, Temasek Holdings of Singapore, China Investment Corporation, Abu Dhabi Investment Authority are examples of SWFs.
In its latest world economic outlook released on Wednesday the IMF said SWFs typically have medium-to long-term investment horizons, suggesting that they are less likely to make abrupt portfolio shifts that could affect market stability.
During the current financial market turmoil, SWFs have made large capital injections into systemically important financial institutions, suggesting that SWFs can play a stabilising role in global financial markets, the report said. “Yet even a gradual shift toward greater portfolio diversification of reserve assets by sovereigns, including through SWFs, could have implications for the flow of funds between countries and the evolution of global imbalances,” it said.
India has not yet decided to set up a SWF.
The Prime Minister's Council on Trade and Industry has suggested that there is a need to create a sovereign wealth fund of $5 billion to begin with for financing acquisition of companies abroad.