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.
Marko Maslakovic, Senior Economist at IFSL said "London is an important centre in the market for SWFs as both a clearing house and location in which funds are managed. A number of funds from Kuwait, Brunai, Singapore and Abu Dhabi have already set up representative offices in London. The UK's open and competitive market for international investment puts London in pole position to capture a growing share of this market over the coming years."
Andrew Cahn, Chief Executive of UK Trade and Investment, which co-sponsored the report, said it is an informative snapshot of Sovereign Wealth Funds and their place in today's global economy.
"The increased profile of Sovereign Wealth Funds in the international finance system has generated enormous opportunities for inward investment into the UK.
"With the world's leading fund management companies based in the city and a regulatory system that promotes competitiveness, a number of these operations have either set up or are looking to set up management offices in London which reinforces the UK's position as the number one destination for financial services."
Sovereign Wealth Funds with representative offices in London
SWFs with local representative offices in London include the Kuwait Investment Office, Brunei Investment Authority, Abu Dhabi Investment Authority and Temasek/General Investment Corporation of Singapore.