The number of sovereign wealth funds (SWFs) operating globally has increased dramatically in recent decades. To date, more than one-quarter of states in the international system now operate this type of financial institution. As a case of sovereign governments investing public money mostly in private markets across borders, it is not immediately clear why SWFs have proliferated to this extent. After all, the ordinary course of business for states is not commercial investing, and sending public funds into international markets doubtlessly portends risks for states, to say nothing of the domestic costs of using such funds for investment rather than other potentially more favourable purposes. Why then are states increasingly creating SWFs?This question constitutes the point of departure for this paper, and I propose a framework that emphasises state capability and need to explain recent trends in the spread of SWFs. This framework is built on a multidisciplinary literature that largely conceives of SWFs as a type of insurance for states to guard against risks that accompany increased participation in the international economy. As states take steps to integrate more deeply into world markets, they subject themselves to growing levels of risk with potentially severe consequences. SWFs are well situated to help states mitigate such risks in ways that allow them to participate more fully in global markets. I propose that the risk-mitigating function of SWFs is helpful for explaining their spread in the international system over the last half-century, and that such a conception contributes to a growing foundational understanding of SWF creation upon which analysts can continue to build.Given the plausible insurance function for SWFs, I argue that states are the most likely to create them when two sets of conditions apply. First, states must have the capability to establish an SWF. Creating an SWF of size sufficient to deliver realisable benefits requires a substantial volume of capital, and such resources are largely beyond reach for many states. As a consequence, I expect that states with relatively limited capabilities will be less likely to create SWFs by virtue of the lack of resources necessary to do so. Second, states must experience the need to insure against external risk. While all states are exposed to heightened risk as participants in world markets, not all states are equally susceptible to such risks. Where states maintain tight capital controls and higher barriers to trade, for example, they are relatively less vulnerable, and thus lack the need for the insurance function of an SWF. If the potentially high costs-political, financial, and other-of