How Much Do the Major Sovereign Wealth Funds Manage?

A score of recent reports have put the total assets managed by sovereign wealth funds at around $3 trillion. That seems high to us – at least if the estimate is limited to sovereign wealth funds external assets.

We don’t know the real total of course. Key institutions do not disclose their size – or enough information to allow definitive estimates of their size. But our latest tally would put the combined external assets of the major sovereign wealth funds roughly $1.5 trillion (as of June 2009) – rather less than many other estimates. This portfolio of $1.5 trillion does reflect an increase from the lows reached of late 2008. But it is well below the estimated $1.8 trillion in sovereign funds assets under management in mid 2008. Significant exposure to equities and alternative assets like property, hedge funds and private equity led to heavy losses by most funds in 2008 – a fact admitted by many of the managers.

My blog has moved

It can now be found at www.blogs.cfr.org/setser. My first post is on — what else — the details of the TIC data. I clearly went for a crowd pleasing mega-hit. If all goes according to plan, the transition should be pretty seamless. The blog archives have been transferred, and at some stage RGE will automatically […]

Adjusting to $125 a barrel oil

This is not a post about the gas tax. Nor is it a post about how the United States existing energy-inefficient capital stock makes it harder for the US to adjust to higher oil prices. Dr. Krugman has already covered that ground well. It is rather a post about how the global balance of payments has to respond to what increasingly looks like a significant oil shock.

Sovereign Economic Development Funds ….

Sovereign funds argue that they are only interested in financial returns.

And to be sure, they do care about financial returns. Losing money generally isn’t good for a sovereign fund’s long-term health. But many are also expected to at least try to invest in ways that contribute to the economic development of their home country. This is often quite explicitly part of the fund’s mandate. Qatar’s investment fund indicates that its investment criteria include “economic synergies or benefits for Qatar and its people.”

Gerald Lyons of Standard Chartered has recognized that sovereign investments are sometimes motivated by concerns that go a bit beyond risk-adjusted return. Stephen Foley reported a while back:

Gerard Lyons, chief economist at Standard Chartered bank and a leading expert on SWFs, said in a recent panel discussion in Washington that funds’ behavior is likely to be a mixture of commercial consideration and “state capitalism”, where investments are likely to reinforce particular government goals, such as spurring the development of natural resources in Africa – already a key area of Chinese government investment.

Finding investments with positive spillovers and synergies is often hard — see Reuter’s Alan Wheatley for an excellent discussion of the constraints sovereign funds face. The most obvious way to promote domestic economic development would be to invest at home rather than to invest abroad. But if a fund exists to manage surplus foreign exchange accumulated to resist pressure for appreciation, it has to invest abroad.

Or at least appear to invest abroad. An investment abroad that triggers a reciprocal domestic investment doesn’t produce a net outflow.

Examples of investments that seemed geared toward promoting the home country’s own economic development are not hard to find.

Mubadala’s investment in Ferrari likely contributed to Ferrari’s decision to build a theme part in Abu Dhabi.

Dubai’s interest in the NASDAQ stemmed from its desire to cement its position as a regional financial center.

Dubai now seems to intend to use its sovereign fund – DIC – to raise the profile of the Dubai International Financial Center. DIFC has had trouble attracting listings. No problem. Firms that the DIC invests in will be encouraged to list on the DIFC. Roula Kalaf in the FT, last week:

DIC is putting $500m into the $1bn fund, set up with Hong Kong-based First Eastern Investment Group, and designed to invest in small and medium-sized companies with the hope of bringing some of them public on the Dubai International Financial Exchange.

While expressing his disappointment with the performance of the DIFX to date – it still has few companies trading and one expected initial public offering was pulled last week – Mr Ansari insisted that the exchange was headed for “revolutionary change” once its tie-up with Nasdaq is implemented.

The new Saudi fund — which thinks of itself as an investment fund rather than wealth fund — also seems to have a mandate that is focused as much on domestic economic development rather than increasing the returns on the Saudis investment abroad. The Saudi finance minister, quoted in Reuters:

“The focus at the beginning may be on the technology sectors, especially in the fields that could attract technology to the kingdom in alliance with global companies,” Ibrahim al-Assaf told Al Arabiya television. The focus would be on investments inside the world’s largest oil exporter, where opportunities abound, Assaf said, adding foreign investment was not ruled out.

Countries have long required that companies wanting to do business with their government show their bona fides by buying locally made parts. Airline orders are an example. Seeking to use the state’s buying power to spur economic development isn’t new.

However, the scale of the funds now at the disposal of many emerging market governments is something that is new. The Gulf’s city-states efforts to use their foreign investments to bolster their efforts to transform themselves into regional financial centers hardly seem to threaten US or European interests – or jobs. Europe, though, has been far more worried by the purchases of a stake in EADS by a Russia’s state bank. And it does seem — based on the Wall Street Journal’s reporting — that Russia’s government hoped that VTB’s stake in EADS would prompt EADS to do more to support Russia’s aerospace industry. MORE FOLLOWS

A heads-up

If all goes according to plan, my blog will be migrating to cfr.org later this week. The transition should be pretty seamless — at least that is the goal. It obviously is a bit of a change for me, after being a part of the RGE site for so long. I am particularly grateful that […]

Taking stock of the dollar’s global role

Peter Goodman looks at the dollar – and the growing dollar reserves of emerging market central banks — in today’s New York Times. He captures the poles of the debate well. Ken Rogoff argues that it doesn’t make sense for poor countries to provide the US with a form of foreign aid by holding more […]

Be careful — real export growth looks to have slowed

Unless your family is in the wheat or beans business (wheat and soybeans exports have more than doubled when q1 08 is compared to q1 07; total food and feed exports are up 50% y/y), there actually wasn’t a lot to like in this month’s trade release. Yes, the headline deficit fell relative to February, […]

The de facto nationalization of the global financial system

The US housing bubble. Bursting. The “the triple bubbles in property prices, mortgage debt, and the shadow banking system.” Burst. Soros’ thirty year super-bubble in leverage and financial assets. Bursting. Perhaps. The bubble in Chinese stocks. No longer bursting. Who knows, China’s policy makers might even do enough to cause a bit of froth — […]

Has China lost interest in the euro?

The blogosphere’s eyes and ears in the London foreign exchange market — Macro man — thinks so. China has, he thinks, been a net seller of euros over the past few weeks.   That is something of a change.  It has been a large net buyer for some time — whether to hit its portfolio […]

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