Sovereign Wealth Funds have crossed the $5 trillion milestone with total assets estimated at $5.38 trillion as of October 2013.
Preqin, in its ‘The 2014 Preqin Sovereign Wealth Fund Review,’ highlights that the growth of SWF’s assets can be attributed to the large number of new sovereign wealth funds that have been formed over the past couple of years, besides the growing assets of pre-existing sovereign wealth funds.
Largest Jump In Total Assets
Preqin started reviewing SWFs since 2008. Since 2012, the SWF’s have gained over $750 billion in additional assets. This marks the largest jump in total assets of SWFs, since Preqin commenced its review.
Asia-based sovereign wealth funds account for a substantial 47 percent of global aggregate sovereign wealth funds, though in terms of number, they account for only 22 percent of global sovereign wealth funds.
Preqin’s report reveals that soon after the credit crisis, several SWFs saw depletion of their assets as governments withdrew to balance its fiscal shortfalls. However, during the past two years, fresh capital has been infused to ensure security for future generations funded by the reserves created today.
Decline In Private Equity And Hedge Funds
Since Preqin’s 2012 review, SWF investors allocated lesser amount to private equity and hedge funds. Preqin feels the recent past has seen substantial growth in the number of new SWFs. Preqin attributes this fall to these newly created SWFs allocating more towards the traditional funds rather than alternative investments during their initial years.
The following graph evidences the proportion of SWFs investing in each asset class in both traditional and alternative investments:
Despite experiencing political and financial unrest, SWFs have continued to thrive and grow. During the past year, assets under management of Middle Eastern SWFs have increased by 6 percent, while Asia-based SWFs witnessed 19 percent growth.
Preqin’s review highlights some new countries such as India, Bolivia and Panama that are all undergoing internal discussions to form their own SWFs.
Preqin’s review reveals Norway-based Government Pension Fund-Global is the largest SWFs globally with $775.2 billion in asset under management, showing an increase of $185 billion since 2012.
Preqin’s review notes MENA, North America and Asia-based SWFs show the greatest appetite for private real estate investments. Besides, 72 percent of SWFs investing in private equity have shown preference for venture capital investments.
Preqin’s report concludes SWFs could witness a number of new allocators once the newly formed SWFs become more developed.