Sovereign Wealth Funds Are Here to Stay; IN ASSOCIATION WITH Rensburg Sheppards Fears Grow over the Power Wielded from Asia and the Middle East

Daily Post (Liverpool, England), July 2, 2008 | Go to article overview

Sovereign Wealth Funds Are Here to Stay; IN ASSOCIATION WITH Rensburg Sheppards Fears Grow over the Power Wielded from Asia and the Middle East


Byline: BY MATT DICKINSON Daily Post Correspondent

BARCLAYS' success last week in attracting pounds 4.5bn from wealthy overseas investors is the latest sign of a seismic shift in the world's financial power base.

The banking giant has secured the cash injection from a bevy of Middle East and Asian groups, including several so-called sovereign wealth funds.

These mammoth Government or state-controlled investment bodies have enjoyed steadily increasing prominence over the past year thanks to a series of high profile acquisitions.

As well as Barclays, some of Britain's biggest companies are among those who have welcomed major new shareholders, including supermarket chain Sainsbury's, the London Stock Exchange and Alliance Medical.

US banking giants Citigroup and Merrill Lynch have also been shored up by huge overseas investments as the credit crunch wiped out investment appetites on Wall Street and in the City of London.

But the moves, which have sparked concern among US and European regulators, could be just the tip of the iceberg.

Years of spending deficits by major Western economies and booming oil and gas prices have left countries like China, Russia and the Gulf states with literally hundreds of billions of dollars to play with.

With no sign of a reversal of the economic trends, sovereign wealth funds (SWFs) are set to become one of the world's most dominant capital flows within a matter of years.

According to research by City representative body the International Financial Services London (IFSL), SWF assets under management increased 18% to EUR3.3 trillion (pounds 1.67 trillion) during 2007 alone.

That compares to EUR1.9 trillion managed by hedge funds, EUR0.8 trillion by private equity and EUR28.5 trillion under the control of global pension funds.

The world's biggest SWF is the Abu Dhabi Investment Council, which is worth an estimated EUR875bn (pounds 444bn). Last year it hit the headlines when it splashed out pounds 3.6bn on a 4.9% stake in the world's biggest bank, Citigroup, making it the bank's largest shareholder.

Next up is oil-rich Norway's Government Pension Fund which exclusively targets overseas investments and has an estimated EUR380bn (pounds 193bn) of firepower. It is followed by the Government of Singapore Investment Corp, which has around EUR300bn (pounds 152bn) at its disposal.

Growing fast is the China Investment Corporation (CIC), formed just last year, which has EUR200bn (pounds 101bn) worth of assets.

This is expected to balloon in the coming years to become the world's biggest.

Analysts at Citigroup have put the recent rise of SWFs down to years of trade deficits run-up by the US and major European economies - effectively spreading their currencies around the world - and rising oil and gas prices buoying commodity rich nations. …

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