More Layers than an Onion – Looking for a Definition of Sovereign Wealth Funds

by Javier Capapé, Tomás Guerrero

This paper was originally conceived as an investigation to pin down what a SWF is. During research, it quickly became apparent that SWFs are constantly evolving, making it hard — if not impossible — to come up with an all-embracing definition for a wide variety of SWFs.

The initial endeavor was to set clear criteria for determining whether a given institution qualified as a SWF or not. When this proved unrealistic, it changed the scope of the paper.

The paper analyzes the definitions used by researchers about a single concept – Sovereign Wealth Funds (SWFs). It is still a matter of recent controversy and debate.

It offers a ‘concentric definition’ of SWFs (hence the reference to onion layers in the paper’s title) to give a better idea of the nature of SWFs and leave others to argue the toss when it comes to specific cases. It will explore the various elements making up definitions of SWFs and try to identify which layers are at the ‘onion’s’ heart and which ones lie further out.

The paper places these definitions into one of eleven categories. The results show full agreement (what it has called ‘the core’) for just two characteristics: SWFs are owned by governments and they are investment funds. Beyond the core, there are three layers commanding general consensus: SWFs are (1) international investors; (2) without explicit pension liabilities; (3) determined by the source of funding.

But the debate remains open. The dynamic nature of SWFs, morphing institutions in a continuous evolution led the authors to conclude that there is no definition to capture the essence of these new instruments of state intervention.

More Layers than an Onion – Looking for a Definition of Sovereign Wealth Funds