31 March 2008

IFSL Report: SWFs to become important participants in global financial markets

SWFs are likely to become more important participants in global financial markets over the coming years as inflows from trade surpluses and commodities exports continue.

Assets under management of sovereign wealth funds (SWFs) increased 18% in 2007 to reach $3.3 trillion according to a new IFSL report on Sovereign Wealth Funds.

There was a further $6.1 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations’ funds and also $5.3bn in other official foreign exchange reserves. Since the start of the sub-prime crisis SWFs, mostly from Asia, have invested over $60bn predominantly in US and Swiss banks. IFSL expects assets of SWFs to reach over $5 trillion in 2010 and $10 trillion in 2015.

The growth in SWFs over the past year has stemmed mostly from an increase in foreign exchange reserves in some Asian countries and rising revenue from oil exports. SWFs funded by commodities exports, primarily oil and gas exports, totalled $2.1 trillion at the end of 2007. Non-commodity SWFs totalled $1.2 trillion, double their total three years earlier: their 36% share of global SWFs at end-2007 may increase to 40% by 2010 and a half by 2015. Non-commodity SWFs are funded by transfer of assets from official foreign exchange reserves, and in some cases from government budget surpluses, pension reserves and privatisation revenue.

Report

© Graham Bishop