Sovereign wealth funds have mushroomed 24% over three years to hold a total of $3.5 trillion in 2007, Global Insight said April 28. The firm said that projected on that annual growth pace, sovereign wealth funds (SWFs) would surpass the entire current economic output of the U.S. by 2015, and the EU by 2016.
The surge in the funds comes as emerging economies, flush with swelling financial resources from higher energy and commodities prices, invest abroad seeking better returns on their investments. However, the rapid rise in investment by the state-run investment funds has raised concerns that governments could use them as political tools.
Global Insight, a Mass.-based company specializing in economic and financial analysis and forecasting, noted that SWFs were changing the nature of ties between developed and developing countries. "Armed with such large amounts of debt-free cash, sovereign wealth funds are the new financial power brokers, replacing the combined financial muscle of hedge funds and private equity, and usurping central banks as the international capital providers of last resort"" Jan Randolph, head of sovereign risk at Global Insight, said.
According to the company's Sovereign Wealth Fund Tracker, in 2007 SWFs injected up to $80 billion into bank shares or bank equity stakes in the U.S. alone. Worldwide, 93% of equity investment has so far targeted the western financial sector. "There has since been a shift of financial weight from West to East, particularly to China, Asia, the Middle East and other energy countries," Randolph said.
The largest sovereign wealth generator remained China, with approximately $1.2 trillion, followed by Russia and Kuwait, according to Global Insight data.
The fastest-growing generators of sovereign wealth over the last five years were: Nigeria, up 291%; Oman (256%); Kazakhstan (162%); Angola (84%); Russia (74%); and Brazil (65%).
In January 2008, worldwide acquisitions by SWFs totaled $20.6 billion or nearly one-third of the total %60 billion that SWFs made in mergers and acquisitions (M&A) for the entire year 2007. SWFs accounted for 35% of world M&A activity in 2007, and 28% of all M&A in the U.S. during January 2008.
Copyright Agence France-Presse, 2008