Assets of sovereign wealth funds climb to record USD4.8 trillion in 2011

Date: Friday, February 3, 2012
Author: Wendy Chothia, HedgeWeek

Global assets under management of sovereign wealth funds (SWFs) increased for the third year running in 2011 to a record USD4.8 trillion, according to TheCityUK’s report: Sovereign Wealth Funds 2012.

There was an additional USD7.2 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations' funds and USD8.1 trillion in other official foreign exchange reserves.

In the past six year’s the UK has attracted 17% of total global SWF investments, second only to the USA 919%) and more than France,m Germany and Spain combined.

TheCityUK’s projections are for SWFs’ assets to grow by 8% in 2012 to USD5.2 trillion, following the 9% increase in 2011. Taken together, governments of SWFs, largely those in emerging economies, have access to a pool of funds totalling USD20 trillion. Some of these funds could in future be channelled towards funding development of infrastructure for which there is global demand.

Marko Maslakovic, Senior Manager, Economic Research at TheCityUK, said: "The UK is the leading destination for SWF investments in the EU, attracting more capital than France, Germany and Spain combined. The most recent example is the acquisition of nearly 9% of the holding company for Thames Water by the China Investment Corporation, the fund’s first major share purchase in the UK.”

There are two types of SWFs: those funded by commodities' exports (primarily oil and gas), totalling USD2.7 trillion at the end of 2011 or 56% of total assets; and non-commodity SWFs totalling USD2.1 trillion which are projected to increase more quickly as some Asian countries, particularly China, continue to build up foreign exchange reserves. Countries affected by the recent political instability in the Middle East and North Africa collectively manage around USD160bn in SWF assets or around 4% of the total.

Direct investments of SWFs totalled USD60bn in 2011, down a quarter on the previous year and 40% below the peak level in activity two years earlier. Companies in the financial services sector, energy and utilities/infrastructure received most of the funding. SWF Institute data shows that the financial services sector was the largest recipient of direct investments in the six years to 2011, accounting for over a third of more than USD400bn invested during this period. Recent transactions suggest that SWFs remain cautious, equity purchases are smaller and more diverse with more focus on diversifying portfolios. Emerging market countries have accounted for a growing share of investments since 2009, a trend that is likely to continue.