SWF Transactions Total More Than $57B in 2012

(January 15, 2013) — Direct sovereign wealth fund transactions in calendar year 2012 totaled $57.3 billion, representing a 36% drop from the previous year of $89.5 billion, according to data from the Sovereign Wealth Fund Institute.

Which sovereign wealth funds are most active? The Government of Singapore Investment Corporation (GIC), Temasek, and other wealth funds that don’t follow index strategy. “It depends on the philosophy of the fund. You won’t have the Alaska Permanent Fund buying a large stake because if you look at their asset allocation, a lot it is externally managed. And they’ve done quite well,” the Sovereign Wealth Fund Institute’s President Michael Maduell told aiCIO.

The database calculates direct sovereign wealth fund transactions–such as a sovereign fund investing directly into real estate. The database does not count money given to a commingled fund or funds managed by a third party to invest. Maduell noted that one big theme from the study is the growth of direct investments in the financial sector, because as economies and specifically the middle class grow, financials are where the demand is. Meanwhile, the data showed that committing capital to real estate funds increased in 2012, as sovereign wealth funds seek to diversify from fixed-income and a volatile global equity market.

While an increasing number of sovereign wealth funds are going direct as opposed to investing in asset classes through external managers, the amounts of those direct investments are smaller, Maduell explained, noting that direct investment reflects a growing comfort and familiarity with asset classes. Going through fund of funds–for the more complex area of alternatives for example–is like tipping your toes in the water. It provides initial access. Direct investment implies a willingness and confidence to go at it alone, Maduell explained.

Related article:How Sovereign Wealth Funds Invest