Sovereign wealth funds (SWFs) assets expanded continued to grow by 11 per cent for the second consecutive year, reaching nearly $4 trillion (Dh14.7 trillion) in 2010, according to Preqin statistics issued recently.
The proportion of SWFs investing in alternatives also rose over 2010, despite the challenging financial climate.
Aggregate assets under management (AuM) of SWFs increased from $3.59tn in 2010 to $3.98tn at the start of 2011, it said.
SWFs are both large and important investors in alternative assets. They have longer-term investment horizons than other investors, and generally do not have to meet as many liabilities. They are therefore better able to commit larger proportions of their portfolios to longer-term and alternative investments.
The proportion of SWFs investing in infrastructure has increased from 47 per cent in 2010 to 61 per cent at the beginning of this year
There has also been an increase in the proportion of SWFs investing in real estate and private equity – 51 per cent to 56 per cent, and 55 per cent to 59 per cent respectively.
The proportion of SWFs investing in hedge funds has remained static at around 36 per cent.
Some SWFs were subject to capital withdrawals – Russia’s Reserve Fund was used to balance the federal budget over
the course of 2010. Its total assets now stand at $25.4bn compared to $60.5bn at the start of 2010.
Unrest in the Middle East and North Africa could have ramifications for the future investment policies of Libyan Investment Authority. The $70bn SWF has been able to invest more freely over the past couple of years to manage the country’s oil revenues but its mandate could alter following any political change in the country.
The SWFs of both Algeria and Bahrain could also be affected. Collectively, the Mena-based SWFs in question have hundreds of billions of dollars in assets and changes in their investment policies would be widely felt.
The number of SWFs investing in alternatives is likely to continue to increase throughout 2011 as they pursue higher returns and seek increased diversity.
“Following global economic stabilisation, many sovereign wealth funds that had delayed plans to diversify their holdings as a result of the economic downturn have now resumed these plans. Therefore, we expect the proportion of SWFs moving into the various alternative asset classes, as well as the amount invested by SWFs in alternatives, to continue to increase in the coming year. The significant collective assets under management of SWFs means that they represent an important potential source of capital for fund managers across all asset classes,” said Sam Meakin, Managing Editor of the 2011 Preqin Sovereign Wealth Fund Review.