Pop quiz: Can you name the very first sovereign fund? Wait, wait; before you answer, let me give you a hint: It’s not the Kuwait Investment Authority. Neither is it Kiribati’s RERF or Singapore’s GIC or ADIA or BIA or SAMA or Nauru or any of the usual suspects that folks tend to cite as the first sovereign fund.

Intrigued? You should be. And you should really make a mental note of what you’re about to read, because I’m growing tired of people – and when I say people, I’m specifically referring to the referees of my journal articles; you know who you are – getting this wrong.

The first ‘sovereign fund’ in the world was... The Texas Permanent School Fund!

Established by the Texas State Legislature in 1854 with a $2 million appropriation, the fund had a generic mandate to ‘benefit the public schools of Texas’. Later, the PSF would be given rights to the proceeds of certain lands (on and offshore) in Texas.

You: ‘Texas?!?! What’s Texas got to do with finance or sovereign funds?’

Me: ‘Oil. Ever heard of “West Texas Intermediate”? The lands that were granted to the PSF – and its cousin the Texas Permanent University Fund (circa 1876) – generated mineral and commodity rents, which ultimately became the corpus of the Fund.’

You: ‘Come on, Ashby, these are sub-national! They don’t count.”

Me: “Oh, really? Ever heard of the Abu Dhabi Investment Authority? Should we count that one or should we only count the Emirates Investment Authority, which is the national SWF for the UAE?”

You: ‘But the TPSF is for Schools! It’s not for, well, stuff that sovereign funds are set up for.’

Me: ‘What the government does with the money after a SWF invests it and returns it back to the government is irrelevant; a SWF can be for paying pensions or paying for schools. It doesn’t matter. The SWF is just a vehicle for investing government wealth in financial markets. That’s it.’

You: ‘I still don’t believe you, Ashby. And, actually, I don’t much like you either.’

Me: ‘Let’s not get personal here. Would you believe the Alaska Permanent Fund, which is the US representative to the International Forum of SWFs? Because in an official document published by the APFC in 2008, the Texas PSF was listed as the first SWF in the world (see page 38). Or, alternatively, would you believe another academic? Paul Rose of Ohio State University wrote a paper on the American funds recently that concluded the same thing. Here’s a quote:

“The TPSF was established in 1854, making it one of the oldest permanent funds in the world.”

Here’s more from Professor Rose:

“While the term “sovereign wealth fund” was only recently introduced, the history of SWFs stretches back many decades. A workable definition of a SWF is a “government-owned and controlled (directly or indirectly) investment fund that has no outside liabilities or beneficiaries (beyond the government or the citizenry in abstract) and that invest their assets, either in the short or long term, according to the interests and objectives of the sponsoring government.” To this definition we can further narrow the concept of SWFs to include only funds that operate under an “endowment” model, so that the fund produces income through investment of the fund’s corpus, with only the income distributed. Under this definition, some of the oldest SWFs are not foreign funds, but funds created by acts of the U.S. Congress and state legislatures over a century ago. Because U.S.-based SWFs do not raise international relations issues from the perspective of U.S. regulators and U.S.-based firms, scholars have paid little attention to these funds.”

Thanks, Paul.

Dear readers (and academic referees!), I’d like to (re) introduce you to the oldest sovereign fund in the world: The Texas Permanent School Fund. It’s 156 years old. Thought you’d be interested to meet one another.