Sovereign Wealth Funds Assets up 18% in 2007
Assets under management of sovereign wealth funds (SWFs) increased 18% in 2007 to reach $3.3 trillion according to International Financial Services London (IFSL).
There was a further $6.1 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations’ funds and also $5.3 trillion in other official foreign exchange reserves, IFSL said in a new report.
Since the start of the subprime crisis SWFs, mostly from Asia, have invested over $60 billion predominantly in US and Swiss banks.
Cross-border M&A deals by SWFs totalled $49 billion in 2007, up 165% from $19 billion in the previous year. Another $24 billion has already been invested in the first three months of 2008.
IFSL expects assets of SWFs to reach over $5 trillion in 2010 and $10 trillion in 2015.
The growth in SWFs over the past year has stemmed mostly from an increase in foreign exchange reserves in some Asian countries and rising revenue from oil exports.
SWFs funded by commodities exports, primarily oil and gas exports, totalled $2.1 trillion at the end of 2007. Non-commodity SWFs totalled $1.2 trillion, double their total three years earlier: their 36% share of global SWFs at end-2007 may increase to 40% by 2010 and a half 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.
The IFSL report includes detailed background information on SWFs, including tables and charts such as this one that helps illustrate one of the fundamental reasons for the current financial woes of the United States.
The IFSL report says that, according to Deutsche Bank Research, SWFs asset allocation could lead to a gross capital inflow of over $1 trillion into global equity markets and $1.5 trillion into debt markets between 2008 and 2013.
In an effort to address the growing concerns over the increasing role of SWFs the Sovereign Wealth Fund Institute today issued The Linaburg-Maduell Transparency Index. The index was developed around Norway’s Government Pension Fund, “as it is known to be the pinnacle of clear investment intentions. ”
The index is based off ten essential principles that depict sovereign wealth fund transparency to the public. The minimum rating a fund can receive is a 1, however, the Sovereign Wealth Fund Institute recommends a minimum rating of 8 in order to claim adequate transparency. The principles:
- Fund provides history including reason for creation, origins of wealth, and government ownership structure
- Fund provides history including reason for creation, origins of wealth, and government ownership structure
- Fund provides independently audited annual reports
- Fund provides percent ownership of company holdings, financial returns, and geographic locations of holdings
- If applicable, the fund provides size, composition, and return of foreign exchange reserves
- Fund provides guidelines in reference to ethical standards, investment policies, remuneration policies, and enforcer of guidelines
- Fund provides clear strategies and objectives
- If applicable, the fund clearly identifies subsidiaries and contact information
- If applicable, the fund identifies external managers
- Fund manages its own web site
- Fund provides main office location address and contact information such as telephone and fax
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