Nigeria’s financial heart, Lagos, is launching a sovereign wealth fund of its own – the Lagos State Wealth Fund – representing the latest in a surge new sub-national SWFs, from Brazil to Malaysia.

In recent days, the bill creating the fund was sent to the state assembly by governor Babajide Sanwo-Olu, coinciding with the launch of the State’s 30-year development plan. Yet, the fund’s mission is hazy, along with its size and source of liquidity.

According to Sanwo-Olu, the bill has four main objectives: stabilization at times of falling revenue; accelerating development and the delivery of critical infrastructure; stabilizing the State economy by protecting its revenue from external shocks; and promoting investment and research in technology and innovation. The combination of stabilization, savings and strategic missions suggests the fund will be similar to the multi-mandate Nigeria Sovereign Investment Authority (NSIA). However, the source of revenue or core assets and the scale of the new fund have yet to be revealed, although Sanwo-Olu has alluded to a sub-national sovereign green bond issue as part of the SWF's fund-raising. KPMG have been appointed technical advisors.

LSWF is the latest sub-national fund to be floated in recent weeks. The state legislature of Malaysia’s Sarawak is set to debate a bill next month to establish a SWF to “safeguard the fortune of the future generations in the state” with a focus on developing university education. The state’s Premier says he has drawn inspiration from state-owned investors in Norway (NBIM and Folketrygdfondet), Singapore (GIC and Temasek) and the UK (UK Government Investments Ltd), which cover an array of mandates and sources of wealth, including state-owned assets, commodity revenues and foreign exchange surplus.

The new fund is likely to be backed by commodity revenues, as Sarawak has gained greater control over its natural resources. Offshore Sarawak contains 54% of Malaysia’s gas reserves, amounting to well over 500 billion cubic metres. In March 2018, the state gained full mining rights, including for oil and gas, over its territory, under a pledge by the government to return eroded rights under the Malaysia Agreement 1963 (MA63), a post-colonial agreement that joined Malaya with Sarawak and Borneo to create modern Malaysia. The state government has also launched Petros, which regulates all upstream and downstream activities in the state, while Malaysia national oil company Petronas has agreed to pay all petroleum sales tax owed to the state from sales that occurred over 2019, totalling about MYR2 billion (US$460 million) – funds that could help seed the new SWF.

Canada is set to get a seventh sub-national SWF with the provincial government of Newfoundland and Labrador releasing details on the proposed Future Fund for the province in recent days. It will invest a portion of revenue from non-renewable resources and excess funds from the sale of government assets that exceed US$5 million. The total could exceed C$100 million, based on the 2021 budget.

The annual amount paid into the NL fund will vary according to the level of oil and gas profits, enabling it to accrue windfall earnings. The province is aiming to establish a fund governed by a board of trustees, as opposed to a Crown Corporation, to ensure it aligns with the government’s fiscal needs. In the fund’s first decade, draw-downs will used only for debt service or extraordinary circumstances, such as the Covid-19 pandemic. After 10 years, its purpose will broaden to include strategic investments.

Sub-national funds are well-suited to federated countries such as Nigeria, Malaysia and Canada, where provincial governments enjoy considerable fiscal autonomy. Yet, they are not new – the world’s first sovereign wealth funds originate in the states of 19th century USA. The USA hosts the bulk of sub-national SWFs with the largest being Alaska Permanent Fund Corp. (US$73.7 billion), Texas Permanent School Fund (US$55.6 billion), and New Mexico State Investment Council (US$36.4 billion). Together, these funds make up 61% of the total AUM of 33 sub-national SWFs established across the world, which amount to US$272.4 billion.

Nine funds were set up in the 19th century, all in the USA where state governments enjoy considerable fiscal autonomy. A further 13 were established in the 20th century, with the USA leading the way, but also including Canada’s Crown Investments Corporation of Saskatchewan (US$16.9 billion) and the Alberta Heritage Savings Trust Fund (US$13.9 billion).

The new century has seen sub-national SWFs expand beyond North America to other countries with federal democratic systems. Australia has established three state-level funds: Western Australia’s Future Health Research and Innovation Fund, formerly known as WA Future Fund (US$1 billion); New South Wales’ Generations Fund (US$8.7 billion); and Victoria’s Future Fund (US$6.3 billion). Added to that are two new funds from an emerging market, Brazil – Espírito Santo FUNSES (US$0.1 billion) and Rio de Janeiro FSERJ (US$0.4 billion) – which were launched in 2019 and 2021, respectively.