Oil prices may have taken a hit over the past week and Spain's debt problems continue to fester, but don't expect these events to put Sovereign Wealth Funds off their game.
They have the deep pockets to take it in their stride, despite a slight dip in investments recently.
"We will indeed see a slowdown in SWF investments over the next couple of months as we run up to Ramadan," said Jesdev Saggar, regional director of capital projects advisory, Deloitte Corporate Finance Limited. "But this is not a function of caution, instead a time for reflection and preparation for what has certainly been a very challenging 12 to 18 months and — more importantly — readiness for a rewarding 12 months ahead. "We therefore see those SWFs hunting the best deals, on their terms."
Values
Recent estimates suggest SWFs hold a combined $3 trillion (Dh11 trillion) plus in various assets, cutting across investment types and geographies.
This is after asset values were hit by the full impact of the global recession and the fallout it left in its wake.
"Time and again, the commodity-powered SWFs of the Gulf have consistently shown they are in for the long-term with their investments," said an investment banker with a global management consultancy. "Short-term oil price fluctuation or asset value erosion come with the territory."
Despite this, according to a note by Ernst & Young, SWFs are in a much stronger position than the private equity and hedge fund sectors, which "have suffered disproportionately far more in the recession and are also facing the threat of potential tighter global regulation".
The Ernst & Young report, however, does make a revision in estimates for the funds under management that SWFs would hold by 2015 — as against the earlier $10 trillion plus (the pre-recession forecast) — it now puts the figure closer to $8 trillion. That is still a lot of money to spread around.
"In line with the growing power of the emerging markets and the associated changes in patterns of global trade and investment flows, as well as a desire to lessen dependence upon dollar assets, SWFs will seek to invest more in the main emerging markets," the report said.
Shift
That would be a timely shift in priorities as Brazil, Russia, Indonesia and China are expected to contribute as much as 40 per cent of global growth in the coming decade.
The SWFs originating from the Gulf will cut out their own sphere of influence as they "continue to run sizeable budget surpluses and hold on to substantial reserves", the E&Y report added.
