SWFs are back… not that they ever went away
Sovereign wealth funds hold a cool $3 trillion in assets. Some say they’re set to become more vocal and activist after being ‘missing in action’ during the tough times. But they never stopped investing.
February 5, 2010 1:58 by Ben Flanagan
Sovereign wealth funds (SWFs) have total assets of an estimated $3 trillion, and – despite having gained a reputation for being secretive and opaque – certainly garner their fair share of attention from the markets and media.
This scrutiny is likely to increase over the next five years. According to a recent report by the Independent Treasury Economic Model Club, SWFs’ total assets are forecast to grow by 10-15 percent a year to $8 trillion by 2015. Currently, equities account for about half of the funds’ portfolios: SWFs – run by the likes of Abu Dhabi, Norway, Kuwait, Singapore and China – own about 4 percent of the world’s listed companies.
Despite all this, SWFs remained relatively quiet during the economic downturn. This was partly down to the fact that they were not making the same kind of headline-grabbing, high-profile investments. It was also due to concerns voiced by some that sovereign funds could pursue political agendas in their investment decisions, and that SWFs lack transparency.
“The funds also took numerous steps to emphasize their commercial stance, trying to be as passive and low-key as possible,” Reuters said in a recent commentary. “Some funds with stakes in public firms are said by industry sources to have even waived board representation and voting rights.”
Jahangir Aka, senior executive officer (Middle East) for asset management firm SEI, says there are two reasons for the perceived silence of SWFs during the recession.
The first factor concerns the type of investments SWFs were making. Despite some high-profile deals (such as the Kuwait Investment Authority’s $750 million investment in BlackRock in 2009, or Abu Dhabi’s Aabar Investments’ acquisition of stakes in Daimler and Virgin Galactic), SWFs have shifted their investment strategy from high-profile direct investments to low-profile investments in publically listed companies.
The second reason cited by Aka is that SWFs “are very conscious of not getting wrapped up in political debates.”