SWFs have waning appetite for West

Some 73% of the world’s EUR 2.3 tln Sovereign Wealth Funds (SWF) sector has exposure to real estate and 51% to infrastructure, according to a new report. While the importance of such funds continues to grow, their appetite among many for Western assets, especially financial institutions, has waned as a result of the global downturn.

Preqin, an information provider on the alternative assets industry, says in its 2009 Sovereign Wealth Funds Review that many SWFs have shifted towards domestic and regional investments after suffering significant losses in recent months - especially those most heavily exposed to the financial sector.

But Preqin says the SWF industry has increased its aggregate assets under management of $3.2 tln (EUR 2.3 trl) despite the global downturn. While many SWFs have seen a significant drop in the value of their investments in the last 12 months, the emergence of new entities has ensured that total assets have continued to rise.

According to the report, aggregate assets under management for SWFs grew at a slower rate that previous years but was nevertheless rose 6% from 2008 when total assets stood at $3.05 tln. The 2008 figure represented a 59% increase on the 2007 figure of $2.02 tln.

Preqin notes that the potential importance of SWFs is greater than ever, as unlike pension funds many SWFs do not have future liabilities that they have to pay out on or external investors who can withdraw capital at short notice. This means SWFs may have longer investment horizons and can invest in risky alternative asset types.