Resource funds have been funded from a variety of sources. In some cases, large trade surpluses have been added to the foreign-exchange reserves of some countries, so as to substantially exceed the normal needs for foreign-exchange stabilisation. In other cases, government pension systems have accumulated substantial reserve funds. The currently most typical, however, are resource funds which are funded by revenues from harvesting non-renewable natural resources, such as oil and gas.
However, these funds are governed by fiscal rules which are often motivated by the permanent-income theory in macroeconomics (Hall 1978). Its great weakness is that it ignores risk. Simple extensions to the risky case can be found in the classical analyses of an individual’s optimal spending and portfolio allocation. Nevertheless, the case of a natural resource fund must take into account the fiscal need for smooth tax rates and government services, which is referred to as backward smoothing. Thus, a resource fund investing should be analysed in the broader framework of asset-liability management (Choudhry (2007). As yet another complication, the substantial movements in risk-free interest rates in recent decades raise the question of how such movements should influence the rules for drawing from a resource fund.