Sovereign wealth funds have not escaped the effects of the global downturn, and some have seen their total assets fall considerably as a result of the drop in value of their investments.
But a new Prequin report says that the aggregate assets under management for sovereign wealth funds currently stands at $3.22 trillion, which although is not as big a growth as we have seen in previous years, still represents a 6% increase from a year ago when the figure stood at $3.05 trillion.
This growth is primarily due to the reclassification of China’s US$312 billion SAFE Investment Company as a sovereign wealth fund following its purchase of a number of public and private equity interests in 2008. Khazakstan has also formed a new fund—the US $29 billion Samruk Kazyna National Welfare Fund over the course of 2008, whileKorea is one of the existing funds that has boosted the assets of its SWF over the past year. These funds have counteracted the effects of declining total assets of some SWFs that have suffered as a result of poor investment returns in the wake of the global economic downturn.
So what are SWFs Investing in? While the majority of the capital is invested in stocks and bonds, SWFs carved out a 49% allocation to private equity and 38% to hedge funds.
“When the enormous collective total assets of sovereign wealth funds are considered, the potential effect that these investors can have on every area of finance becomes clear,” said Tim Friedman, head of publications at Preqin.
“Other institutional investors such as pension funds have been holding back on making new investments, and with traditional sources of financing drying up, and many industries desperate for a cash injection, sovereign wealth funds will be a vitally important source of capital in 2009. They will also be well positioned to take advantage of opportunities that arise as a result of the global downturn, and we have already seen an interest from SWFs in alternatives funds focusing on distressed markets, and also in the private equity secondaries market.”
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