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Tue 28 Oct 2008 04:44 PM

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SWF assets to hit $10tn by 2015

Cash-rich state-owned funds expected to grow assets under management by 15% a year - Deutsche.

Cash-rich sovereign wealth funds (SWFs) are expected to grow their assets under management by 15 percent a year, amassing a massive $10 trillion in assets by 2015, Deutsche Bank said in a report published on Tuesday.

The German bank said assets under management currently stand at around $3.6 trillion.

Deutsche Bank said growth will be driven by hydrocarbon reserves, current account and government surpluses and receipts from the sale of commodities, which the bank described as a "formidable source from which governments can theoretically feed their state-owned funds".

SWFs have grown dramatically in recent years as oil rich nationals such as Abu Dhabi and Russia, and large exporting countries such as China, have used their huge budget surpluses to buy stakes in Western firms.

But the normally secretive SWFs hit international headlines in the last 12 months when major financial institutions in the US and Europe, including Citigroup, Merrill Lynch and UBS, turned to the funds for cash in the wake of the global financial crisis.

However, politicians in the US and Europe have expressed concern that state-backed funds could harbour political motivation rather than strictly commercial.

Deutsche Bank said in the report SWFs are heading for a "new state of normality", incentivised by internationally agreed principles on transparency and governance.

A international working group of SWFs, working with the International Monetary Fund (IMF) recently agreed 24 principles, including a commitment to financial objectives and guidelines for better transparency and disclosure of relations to governments.

"SWFs are set to be recognised by markets and policymakers as institutional investors like many others, albeit of a separate breed,” the bank said.

Deutsche Bank said Middle East state-backed funds have contributed to 34 percent of the funds for transactions reported globally since 1995, while Asian funds contributed 66 percent.

Investments by SWFs have been primarily made in North America and European countries as they represent the widest selection of investments and a high level of liquidity, the bank said.

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