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UAE tops GCC in global SWFs ranking

The Abu Dhabi Investment Authority ( Adia ), Saudi Arabia's Sama Foreign Holdings and Kuwait Investment Authority ( KIA ) are ranked among the top 10 global sovereign wealth funds (SWFs) in terms of their assets under management. This is according to the recent top 50 global SWFs ranking by the Sovereign Wealth Fund Institute (SWFI), a private corporation headquartered in the US.

Adia , Sama Foreign Holdings and KIA are the only three SWFs from the GCC to rank among the top 10 global SWFs. Overall, Adia is ranked at the top of the list having the highest assets under management of $627 billion (Dh2.3 trillion). This is followed by Norway's Government Pension Fund Global having $443bn of assets under management. Sama Foreign Holdings ranks third with $432bn of assets under management, according to the ranking.

Other SWFs from the UAE to rank in the top 50 global list are Investment Corporation of Dubai at 25th, International Petroleum Investment Company at 28th, Mubadala Development Company at 30th, the RAK Investment Authority at 42th, the Emirates Investment Authority at 48th, and the Abu Dhabi Investment Council at 50th place.

All the top three SWFs are oil-based, says the ranking. However, SWFs from China have the maximum presence in the top 10 ranking with three Chinese SWFs making their way into the ranking - Safe Investment Company (4th), China Investment Corporation (5th), and Hong Kong Monetary Authority Investment Portfolio (10th). Other SWFs in the top 10 ranking are from Singapore (Government of Singapore Investment Corporation ), and Russia (National Welfare Fund).

Overall, the UAE topped the GCC in terms of the highest number of SWFs from any Gulf country making it to the top 50 global list. Other SWFs from the GCC on the list are Oman's State General Reserve Fund and Oman Investment Fund , Saudi Arabia's Public Investment Fund , Bahrain's Mumtalakat Holding Company, and Qatar's Qatar Investment Authority.

Last week, HSBC's Group Chief Economist and Global Head of Economics and Asset Allocation Research, Stephen D King, said: "The rise of state capitalism and vast sovereign wealth funds in Abu Dhabi, China, Singapore and Dubai will likely tip the terms of trade in favour of these newly powerful nations and city states. In addition, emerging economies' populations will grow and become better educated, leading to more competition for jobs around the world, even at the highest levels."

King said this during an interview in Dubai held at the Capital Club.

"A couple of years ago as the world faced the impact of the US sub-prime crisis and the subsequent collapse of Lehman Brothers triggering the global liquidity crunch, SWFs around the world poured billions of dollars into global financial system thereby helping reduce the impact of the global financial crises," Vikas Papriwal, KPMG's UAE Head for Sovereign Wealth Funds and Private Equity, told Emirates Business.

He said since SWFs have a diversified portfolio, they are able to play the role of an effective catalyst in terms of balancing some of the distorting global sectoral trends. Though investments in the real estate and financial sectors have traditionally remained the two most prominent investment sectors, SWFs have also actively been investing in other basic sectors such as infrastructure, healthcare and education, among others (either directly or in their fund of funds role).

Papriwal said as bank funding has been scarce or nonexistent over the past two years for some of the critical projects globally, SWFs have stepped in to provide the crucial lifeline to some of the major institutions and projects around the world and continue to do so, thus being enablers for global economic growth.

"SWFs are a dominant force in the global economy supporting capital and employment growth while at the same time acting as a responsible investor class. One of the biggest fears allayed against SWFs by many investee countries is that they may act against the economic and political interest of such countries. On the contrary, history has proved that SWFs are long-term players and their investment philosophy has been to protect their investment interests and in turn those of the investee countries," he added.

Overall, the combined assets under management of top 50 global SWFs stood at $3.81trn by March, out of which assets of oil and gas related SWFs is $2.27trn, according to SWFI.

Further, in terms of funding source, the share of oil and gas-related SWFs was 60 per cent, while that of the non-oil and gas-related SWFs was 40 per cent.

In terms of region, Asia has the largest share being home to as much as 38 per cent of the total global SWFs, closely followed by the Middle East having 37 per cent, Europe 18 per cent, Africa three per cent, Americas two per cent and the rest of the world having two per cent of the total global SWFs.

The UAE's Mubadala Development Company also ranks second in the SWFI's Q4 2009 Linaburg-Maduell Transparency Index, while Chile is at the top.

Sovereign investors have always had a slight eye on commodities, even before the financial meltdown, the SWFI said in another report titled 'Investment Themes: Non-Commodity Sovereign Funds continue to invest in Resource & Mining Firms' released this month.

"Traditionally, the oil-based SWFs such as KIA , Abu Dhabi funds and Libya that have a deep history in commodities, invest in mining, but we have seen non-commodity SWFs enter into the mix. Our hypothesis is that several non-commodity SWFs come from countries that are growing and need access to commodities to further their expansion and achieve economic objectives," the report said.

The report said many non-commodity SWFs want to diversify just like any other institutional investor. Strategically, non-commodity SWFs can benefit from investing in mining and resource companies. Whether the governmental investor is China or India, they will continually need raw input for growth, or Singapore, looking to diversify from traditional sectors, demand will continue for eye-catching resource companies.

By Sunil Kumar Singh

© Emirates Business 24/7 2010