Assets of sovereign wealth funds up 11 per cent in 2010

• Assets under management of SWFs up 11% in 2010 to $4.2 trillion. Expected to reach $5.5 trillion by 2012.

• Around 3% of global SWFs' assets in countries currently affected by political instability.

• SWFs' investments total over $20bn in first six months of 2010, double the value invested in the same period in 2009.

Assets under management of sovereign wealth funds (SWFs) increased 11% in 2010 to a record $4.2 trillion according to TheCityUK report Sovereign Wealth Funds 2011. There was an additional $6.8 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations' funds and $7.7 trillion in other official foreign exchange reserves. TheCityUK estimates that SWFs' assets could reach $5.5 trillion by 2012 as the global economy recovers and inflows from trade surpluses and commodities' exports increase. The political instability in the Middle East and North Africa may have consequences on the direction of investments and rate of growth of some SWFs, although the $150bn managed by these countries only accounts for around 3% of global SWFs' assets.

SWFs have gradually regained their appetite for foreign investments following a retreat towards domestic markets in the early part of 2009. The $20bn invested in the first half of 2010 was double the value invested in the same period in 2009. Financial services were in receipt of one-third of SWF investments during this period, with SWFs continuing to make a larger number of small investments and diversifying their investments. The China Investment Corporation and Qatar Investment Agency were particularly active in the first half of 2010 with $7.3bn and $5.3bn invested respectively.

Assets of SWFs funded by commodities' exports, primarily oil and gas exports, totalled $2.7 trillion at the end of 2010. Non-commodity SWFs accounted for the remaining $1.5 trillion and are projected to increase more quickly. Non-commodity SWFs are typically funded by transfer of assets from official foreign exchange reserves, and in some cases from government budget surpluses and privatisation revenue. Asian countries account for the bulk of such funds.

Marko Maslakovic, Senior Manager, Economic Research at TheCityUK said: "The UK is a key centre for SWFs both as a clearing house for transactions and a location from where some funds are managed. A number of funds from Kuwait, Brunai, Singapore and United Arab Emirates have set up representative offices in London. The UK's open and competitive market for international investment puts London in pole position to capture a growing share of this market over the coming years."