Assets under management of sovereign wealth funds (SWFs) increased 18% in 2008 to reach $3.9 trillion according to IFSL’s report Sovereign Wealth Funds 2009. The losses SWFs incurred on some investments during the past year were more than offset by inflows of new funds. There was an additional $5.5 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations’ funds and also $6.1 trillion in other official foreign exchange reserves.
The pace of growth of SWFs’ assets may slow somewhat in the next few years due to falls in commodity prices and the global economic downturn which may result in slower accumulation of foreign exchange reserves. IFSL nevertheless expects assets of SWFs to double to $8 trillion by 2015. Since the start of the sub-prime crisis SWFs, mostly from Asia, have made substantial losses on $60bn invested in US, Swiss and UK banks. Partly as a result of this and the global economic downturn, SWFs have placed more emphasis recently on injecting liquidity and helping to revive their local economies.
Countries with SWFs funded by commodities’ exports, primarily oil and gas exports, totalled $2.5 trillion at the end of 2008. Non-commodity SWFs totalled $1.4 trillion and are projected to increase their 35% share of assets in 2008 to 55% by 2015. Non-commodity SWFs are funded by transfer of assets from official foreign exchange reserves, and in some cases from government budget surpluses, pension reserves and privatisation revenue.
Marko Maslakovic, Senior Economist at IFSL said “SWFs have increased their influence on global financial markets since the start of the credit crisis. London is an important centre for SWFs both as a clearing house for transactions and a location from which some funds are managed. The many advantages it offers as a business location should allow it to capture a growing share of this market in the coming years.”
Sir Andrew Cahn, Chief Executive Officer at UK Trade & Investment (UKTI) said: “The UK’s long history of openness to foreign investment has seen SWFs be part of the UK financial services sector for more than 50 years. Economies best prepared to overcome the current global economic downturn will be those maintaining open markets to attract overseas investment, including SWFs.”
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