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Sovereign fund assets cross $4tr

Thursday, Oct 28, 2010

Gulf News

Report says they are continuing a trend of making more but smaller individual investments

Dubai Sovereign wealth funds (SWFs), considered by some to be the saviours of last resort during the global financial crisis, are back with a bang.

The value of their combined global assets is estimated to have breached the $4 trillion mark this month, led by strong expansion in the assets of commodity-backed SWFs.

The balance of investing power has also shifted from the Middle East to Asia, according to the latest research.

Norway’s Government Pension Fund Global, or GPFG, announced that it topped three trillion crowns for the first time, bringing its overall asset value to $512 billion.

According to research by the Sovereign Wealth Fund Institute in Las Vegas, which tracks these funds and analyses their impact on global finance, Norway’s growth has pushed global SWF assets past the $4 trillion mark for the first time, from $3.9 trillion at the end of September.

Holding lead

Oil-based sovereign funds such as Norway’s GPFG and UAE’s Abu Dhabi Investment Authority ( Adia ) still hold the lead over non-commodity based SWFs.

The SWF Institute reckons that Adia is still by far the largest sovereign fund in the world, with an estimated $627 billion in asset value. It is followed by Norway GPFG and Saudi Arabia’s Sama Foreign Holdings, which is estimated to have $415 billion in assets. Oil and gas-related sovereign funds handle about $2.35 trillion worth of assets while non-oil funds handle $1.68 trillion.

Geographically too, global sovereign funds have seen a slight shift of wealth from the Middle East to Asia. For the first time, Asian wealth funds led by Chinese funds have overtaken Middle Eastern funds in the value of their holdings.

Asian funds now account for 38 per cent of global SWF holdings, pushing Middle East funds to second place with 37 per cent.

After withdrawing from the market during the first half of 2009, sovereign investment activity picked up. During the first half of this year, 16 sovereign funds undertook 92 publicly reported investments with a value of $22.2 billion — double the number and value in the same period in 2009.

Monitor Group data showed that the number of SWF deals increased by 20 per cent in the first six months or 2010 compared to the preceding six months. “SWFs are continuing a trend identified at the end of last year — that of making more but smaller individual investments and generally taking smaller shareholdings,” a Monitor analyst said.

Only 12 publicly reported deals valued at $3 billion were made in sovereign funds’ home economies.

By contrast, over three quarters of SWFs’ publicly reported expenditure ($16.3 billion) and nearly half of the deals (47 per cent, 43 deals) occurred in the OECD, Monitor data showed.

By Yazad Darasha, Business News Editor

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