Sovereign wealth fund assets increased by 8% last year to reach a record $5.2 trillion, with Asian entities accounting for $2 trillion, or 39% of the total, according to figures by the Sovereign Wealth Fund Institute and a UK financial sector body.
China has the biggest share of SWF capital by country, with $1.49 trillion, accounting for 29% of the global total of sovereign wealth. It is up from $1.14 trillion last year and is nearly twice as much as the $816 billion held by United Arab Emirates, the second-largest pool of SWF assets.
Asia and the Middle East collectively account for about three-quarters – or $3.8 trillion – of the world’s sovereign wealth.
SWF assets will continue to grow, reaching $5.6 trillion by year-end, according to an estimate by TheCityUK’s Sovereign Wealth Funds 2013 report.
Asian sovereigns, particularly those in China, will continue to see capital inflow in the coming years due to a rise in foreign exchange reserves and growing demand for commodities on a global basis.
About 58% of global sovereign assets are attributable to commodities, predominantly from oil revenue. This is reflected in the amount of capital held by the third-largest sovereign, Norway, with $664 billion, and Saudi Arabia, the fourth-biggest with $538 billion.
In terms of investment trends, there has been greater portfolio diversification with sovereigns increasing their global real estate investments by 30% over the past 12 months, notes TheCityUK study.
Property deals in the UK last year include China Investment Corporation’s £245 million ($365 million) purchase of Winchester House, the London headquarters of Deutsche Bank, and the mainland’s State Administration of Foreign Exchange’s £550 million acquisition of a 40% stake in UPP Group Holdings – a major provider of university accommodation in Britain.
Additionally, Korea Investment Corporation paid £75 million for an office block located opposite to the Bank of England.
IT and consumer goods are also benefitting from greater allocations from sovereigns, with TheCityUK attributing the shift to low bond yields among some developed countries and volatile equity markets.
Geographically, the US has been the leading destination of direct investments by sovereigns, accounting for one-fifth of $500 billion invested since 2005, followed by the UK with one-sixth of the total.
The report notes that direct investment by SWFs into developed countries has grown at a faster pace than in emerging markets. However, a geographic shift is predicted with emerging markets – particularly Bric countries – expected to capture a growing share of investments in the coming years.