Dubai: A report by the Ernst & Young Item Club released yesterday highlights that despite the impact of the last 12 months sovereign wealth funds (SWFs) are poised to enter another period of sustained and impressive growth.
The disparity in economic growth seen over the last decade between the developed and emerging markets will be heightened by the latter's rapid emergence from recession. Item forecast that the BRICs (Brazil, Russia, India and China) are expected to contribute 40 per cent of global growth between 2010 and 2020 — with China accounting for a quarter. Although the recession has reduced global imbalances, China and the Middle East in particular have continued to run large surpluses and amass reserves.
Strong position
Funds managed by SWFs may have fallen in value in the last 12 months to some $3-$3.5 trillion (Dh11-12.85 trillion), but they remain in a far stronger position than the private equity and hedge funds sectors that have suffered disproportionately far more in the recession and are also facing the threat of potential tighter global regulation.
Item is forecasting that, assuming growth in assets of some 12-15 per cent per annum, total funds under management by SWFs could climb to $8 trillion by 2015. Although this is down on the $10 trillion plus that was predicted for this date prior to the global recession it will still ensure that SWFs will be powerful players in the capital markets in the years to come.
The substantial increase in the price of oil and other commodities is the main driver behind the recent recovery in the strength of the SWFs and Item sees little chance of that dynamic changing in the medium to long term.
It is also likely that there will be an increase in the number of SWFs as other oil-producing countries including Iran, and possibly Iraq in the years ahead, look to invest surplus funds.
Investment strategies of SWFs have come under scrutiny in recent years, but their investments have generally been long-term.
