In August 2016, Turkey announced details of a plan to establish a sovereign wealth fund (“SWF”)—the Turkey Wealth Fund. The basic organizational design of the fund was presented and, in early 2017, shares of Turkish state-owned enterprises (“SOEs”) were transferred to the fund and dividends were diverted to the fund from the central budget. While the precise operating framework and plan for the fund are still under review, indications from the government suggest that the fund will leverage holdings of state enterprises to borrow in global capital markets. This format is certainly not unusual among SWFs organized as state holding companies. More unusual is the prospect that the funds will be used for investment in capital and infrastructure projects in Turkey. In fact, such an operating model may indeed call into question whether Turkey is actually setting up a SWF. SWFs arrived into international financial consciousness prior to the global financial crisis in 2007. Punctuated by rising commodity prices and expanding reserves, their growth trajectory led to expectations of steadily accumulating assets as well as increasing influence in international capital markets. As the crisis deepened and global liquidity drained from the system, SWFs–awash in cash–even provided timely equity capital to a number of global financial institutions. Since then, the pace of SWFs’ asset growth has plateaued, largely due to the precipitous drop in oil prices and slower reserve accumulation.
SWFs, as institutions, have become more widely recognized and accepted as professional investors and co-investment partners. Since the global financial crisis, their institutional remit has likewise evolved, as indicated by the case of Turkey. Yet Turkey is far from alone. A wide number of states–many with emerging economies–have discussed, proposed, announced, or launched a fund. These include Poland, Romania, Kenya, Egypt, Israel, Armenia, India, Indonesia, Thailand, Bangladesh, and Guyana. In several instances (e.g., Kenya, Egypt, Israel, and Guyana), consideration of a fund is linked to anticipated revenue streams from newly discovered oil and gas deposits. In others, such as Turkey, the objective is discretely development focused.
This Article will examine this contemporary reality: SWFs are being established at an accelerated rate with mandates–in whole or part–focused on development, diversification, and economic transformation. The objective is to peer into the future of these funds and frame the rationale for SWFs as domestic investors in development to direct or catalyze investment as professionally managed and governed investment institutions.
