Sovereign funds grow in influence

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Growing in spending power: President HH Sheikh Khalifa Bin Zayed Al Nahyan, and HH Sheikh Mohammed, UAE Vice President, Prime Minister and Ruler of Dubai, are behind two of the world’s most powerful sovereign wealth funds. (Karim Sahib/AFP/Getty Images)

Sovereign wealth funds (SWFs) are likely to have a growing influence on financial markets, and could increase sixfold from their current value of US$2.2 trillion to $13.4 trillion in 10 years' time, according to a study by Standard Chartered Bank.

The study also found that GCC sovereign wealth funds (SWFs) are among the least transparent.

Dr Gerard Lyons, chief economist of Standard Chartered and author of the report, said: "We expect these government-controlled funds to take bigger financial stakes in equity and bond markets across emerging economies, to feed more money into alternative investments such as hedge funds and private equity, to boost strategic links with countries that have not shared fully in the benefits of globalisation or which have been shunned by the West, and to take more strategic stakes in sensitive areas within developed countries."

He added: "Western countries may need to accept the rise of SWFs as a further sign of a shift in the world economy and should seize this as an opportunity to work with emerging economies such as China and Russia, countries in the Middle East and others to find common ground rules and a code of practice."

The study identifies 20 SWFs, of which seven have more than $100 bn in assets. These are Abu Dhabi, Norway, Kuwait, China, Russia, and GIC and Temasek, both of Singapore.

Those SWFs found to be most transparent in terms of their size, portfolio composition and investment return were Norway, Temasek, Alaska, Malaysia, Azerbaijan, and Alberta, Canada.

Those found to be least transparent were the UAE funds, Kuwait, China, Qatar, Brunei, Venezuela, Taiwan and Oman.

A meeting of the G7 group of countries last month proposed tight controls on SWFs, but failed to come up with any concrete recommendations.

The report finds that there is a strong case for SWFs to become more transparent, and to encourage the opening up of markets in the countries they represent, in order to avoid protectionist pressures and clashes with Western governments.

The study was carried out with support from Oxford Analytica to ensure an independent perspective, as some SWFs are shareholders in Standard Chartered.

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