SWFs Seen as Invaluable Sources of Capital for Government Debt

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 (March 25, 2010) – Sovereign wealth funds, which hold billions of dollars in government bonds, are becoming increasingly attractive pools of investors to relieve government debt burdens.

According to the Financial Times, as the economic crisis adds to government debt burdens, debt managers face growing pressure to improve their sales skills and foster relationships with wealthy investors like SWFs.

For example, China’s State Administration and Singapore’s Government Investment Corporation (GSIC) together hold about $600 billion in assets under management and approximately 20% in government bonds, the FT reported.

Another example of the immense power of these pools of investors: After total assets under management at SWFs declined 3% in 2009 to $3.8 trillion, a new report expects a rosy outlook ahead. By the end of 2012, SWF assets globally are expected to increase 44% to $5.5 trillion, a recent report by the  International Financial Services London (IFSL) noted, with an anticipated trend to oversees investments.

“We have to borrow much higher volumes these days,” said Carl Heinz Daube, the head of Germany’s formidable debt management agency, to the FT. “Hence, it makes a lot of sense for us to meet investors, so we can answer their questions.”

The heightened pressure on governments to woo SWFs has also led to the Official Monetary and Financial Institutions Forum (Omfif), which was formed to encourage communication among central banks and SWFs to help debt managers sell bonds.