van den Bremer, T., van der Ploeg, F. and Wills, S. (2016). The Elephant In The Ground: Managing Oil And Sovereign Wealth European Economic Review, 82:113--131.

One of the most important developments in international finance and resource economics in the past twenty years is the rapid and widespread emergence of the \$6 trillion sovereign wealth fund industry. Oil exporters typically ignore below-ground assets when allocating these funds, and ignore above-ground assets when extracting oil. We present a unified stylized framework for considering both. Subsoil oil should alter a fund's portfolio through additional leverage and hedging. First-best spending should be a share of total wealth, and any unhedgeable volatility must be managed by precautionary savings. If oil prices are pro-cyclical, oil should be extracted faster than the Hotelling rule to generate a risk premium on oil wealth. Finally, we discuss how our analysis could improve the management of Norway's fund in practice.