Al Gore Urges Sovereign Wealth Funds to Take Longer-Term View

(October 19, 2011) — Al Gore, the former US presidential candidate and vice president, claims that sovereign wealth funds have the potential to help solve financial and environmental challenges worldwide.

Thus — speaking in Paris to an audience of delegates from over 35 sovereign wealth funds and other long-term investors with more than $9 trillion in total assets under management — Gore has encouraged sovereign wealth funds to take a longer-term view of their investments, Financial News reported. “Long-term investors need to be financially incentivised to consider long-term approaches…there are a number of innovative ideas, like loyalty shares, to accomplish this goal,” he told the conference.

In addition, Gore — co-founder and chairman of Generation Investment Management — urged better communication between sovereign wealth funds and recipient countries, nothing that “there are benefits to this source of long-term capital, particularly as a potential stabilizing force for international financial markets and the environment.” He continued: “Green cities and urban sustainability constitute important opportunities for sovereign wealth funds.”

Gore’s assertions follow a March report by Preqin that showed sovereign wealth fund assets have swelled 11% in the previous 12 months to about $4 trillion, fueled largely by intensified alternative investment programs, according to a report by Preqin. “Following global economic stabilization, many sovereign wealth funds that had delayed plans to diversify their holdings as a result of the economic downturn have now resumed these plans,” Sam Meakin, Managing Editor of the 2011 Preqin Sovereign Wealth Fund Review, said in a release. “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.” With their longer-term investment horizons compared to other investors, the report found that despite the challenging financial climate, sovereign wealth funds have been better able to commit larger proportions of their portfolios to longer-term and alternative investments.

Preqin’s findings provide context for the Korea Investment Corporation’s (KIC) decision to allot a greater portion of its portfolio to alternatives. “At this stage, we’re about 15% in the alternative/strategic space and 85% in public markets,” the KIC’s Scott Kalb told aiCIO during a telephone interview in January. “Normally, when you get involved in alts, there’s a ‘J-curve effect’ as it takes a while to get performance – but, interestingly, all our alternative and strategic investments are moneymaking, even at this early stage, which is unusual.”