Well, I’d probably turn to the sovereign wealth fund community. It turns out that this sector is sitting on a whopping $4 trillion in assets under management (well, $3.98 trillion, according to Preqin, but who’s counting, right?). Meanwhile, the latest estimate for the global hedge fund sector is a paltry $2.47 trillion … and this is the result of a “comeback” for this beleaguered corner of the alternative investment industry.
What is interesting is that the sovereign wealth fund space was able to overcome some incredible odds to post 11 per cent year-over-year growth in 2010, including the raiding of the Russian fund to fix a budget shortfall. So, this flexible source of capital is growing. That gives some weird countries, like Libya, much more breathing room than they’d have otherwise. Let’s take a closer look at this $4 trillion space and what’s going on in it:
1. Sovereign wealth funds were used and continued to grow anyway. Russia’s Reserve Fund fell from $60.5 billion at the beginning of last year to $25.4 billion in assets under management this year, according to Preqin, because it was used to balance the federal budget. Back in December alone, the Russian government plucked $15.4 billion from the fund.
2. Contributions were thinner in some sovereign wealth funds than usual. Chile’s Pension Reserve Fund, for example, was a victim of this situation. The government didn’t pony up the sort of capital it has in the past.
3. This was the second year in a row that the sovereign wealth fund space posted double-digit growth. From 2009 to 2010, the sector showed an 11 per cent annual growth rate, taking assets under management from $3.22 trillion to $3.59 trillion, Preqin reports.
4. There are advantages to sovereign wealth funds. These vehicles tend to enjoy “longer-term investment horizons” and have more flexibility with liabilities than pension funds and insurance companies.
5. Look for the political situations in the Middle East and North Africa to have an impact on sovereign wealth fund holdings, Preqin observes. There is $70 billion with the Libyan Investment Authority, for example. Algeria and Bahrain have “significant sovereign wealth funds” as well.
So, what does all this add up to? Well, for investment managers, it equals “an important and large potential source of capital.” Real estate is a favourite, with 56 per cent of sovereign wealth funds investing it, with an average target allocation of 8.3 per cent.
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