Is the emergence of new sovereign wealth funds a fashion phenomenon?

The aim of the paper is to shed light on the question of why a country decides to set up a Sovereign Wealth Fund (SWF). Despite the recent financial crisis, 43 SWFs have been created between 2005 and 2014. In particular, we test if the emergence of these new recent funds can be explained by the following economic, political and institutional factors : i) the excess foreign exchange reserves due to natural resources rents or persistent current account surpluses ; ii) the volatility of commodity prices ; iii) a way to mitigate the "Dutch Disease" effect and iv) the governance of the country. We test these hypotheses on a sample of 37 countries that created a SWF over the period 2000-2014 and compare them to a large panel of countries that did not set up a SWF. In order to allow the temporal dimension as well as the unobserved heterogeneity between SWFs, a Logit panel model with random effects is estimated. The results show that countries for which the creation of a SWF is more appropriate are those with foreign exchange excess reserves, which are dependent on a commodity and on its volatility and which suffer from an appreciation of the real exchange rate. We also find that non-democratic countries with a high level of corruption are more likely to create a SWF. Our results may be of interest for policymakers debating whether or not it can be optimal for the country to establish a SWF. "Modern Sovereign Wealth Funds are not new. The first, the Kuwait Investment Office, was set up in 1953 just as Edmund Hillary and Tenzing Norgay were setting out to climb Mount Everest. The number of funds has been increasing since then like the traffic on the slopes of Everest" (John Gieve, former deputy Governor of Bank of England in a speech in London, 2008).