SWF Assets to Rise by End of 2012, With Shift Abroad

(March 2, 2010) – By the end of 2012, sovereign wealth fund assets globally are expected to increase 44% to $5.5 trillion, according to a report by the International Financial Services London (IFSL), with an anticipated trend to oversees investments.

SWFs invested $10 billion during the first half of 2009, the slowest start to a year since 2005. But investments picked up in the second half of last year, with much of the invested $50 billion allocated to markets in Europe and North America.

IFSL, a UK-based financial-services industry organization, estimated that as of the year-end 2009, SWFs funded primarily by commodities exports, such as oil, held about $2.5 trillion in assets, while non-commodity SWFs, funded by manufacturing, public savings or fiscal surplus for example, totaled $1.3 trillion.

“Non-commodity funds are capturing an increasing share of SWFs’ assets, a trend that is likely to continue in the coming years,” the report stated.

Since 2007, IFSL’s release said, the profile of SWFs has risen considerably, as the credit crisis emphasized the increasing role of investment by foreign governments.

About 40% of SWF assets came from Asian and Middle Eastern countries, with Europe accounting for most of the remaining funds. Approximately one-fourth of the SWF global total came from China, which boasts the largest individual country share. Other influential countries with the greatest percentages of the world’s SWF assets include the United Arab Emirates (18%) and  Norway (12%).

In recent news,  Norway’s Ministry of Finance recently said that its Government Pension Fund-Global, with $424 billion in assets under management, could soon be invested in global real estate.

“Real estate is the largest asset class after shares and bonds, and these investments fit well with the fund’s investment profile,” said minister of finance, Sigbjørn Johnsen, in a statement. “In order to reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well-developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal.”