Leadership (Abuja)
30 April 2008
According to report released on Monday by a US economic firm, Sovereign wealth funds have mushroomed 24 percent annually over the past three years to hold a total of $3.5 trillion in 2007.
The company, Global Insight, also said that projected on that annual growth pace, sovereign wealth funds (SWFs) would surpass the entire current economic output of the US by 2015, and the EU by 2016. Global Insight, a Massachusetts-based company specialised in economic and financial analysis and forecasting, noted that SWFs were changing the nature of ties between developed and developing countries.
Reuters also observed that China, Russia and Kuwait were the owners of the largest funds, the report said - but with others including African oil-rich countries once more associated with instability and conflict following rapidly behind.
Their growth may effectively reverse the trend in which rich western investors put money into emerging markets by making developed economies more dependent on emerging market cash. Even if growth slowed, they would likely eclipse the US within a decade, the group said.
Sovereign wealth funds also account for around 10 percent of private equity investments globally, Global Insight said, making their activities even harder to scrutinise.
So far, 93 per cent of sovereign wealth fund equity investment had targeted the western financial sector, the report said. The report estimated sovereign wealth funds injected up to $80 billion in bank shares or bank equity stakes in the US in 2007, likely to provide even more capital this year and next.
Dow Jones writes that "Funds from developing countries are advancing at a scorching pace, with Nigeria growing 291 percent, Oman 256 percent, Kazakhstan 162 percent and Angola 85 percent, all over the last five years. 'Armed with such large amounts of debt-free cash, sovereign wealth funds are the new financial power brokers, replacing the combined financial muscle of hedge funds and private equity, and usurping central banks as the international capital providers of last resort,' said Jan Randolph, the head of sovereign risk at the firm, in a statement.
Furthermore, The Daily Telegraph reports that the research company said that in January 2008 alone, global acquisitions by the funds totaled $20.6 billion. The funds accounted for 35 percent of world merger and acquisition (M&A) activity in 2007, and 28 percent of all M&A in the US during January 2008. The organization said this shows that the funds are taking the place of private equity firms, where M&A activity has fallen as the credit crunch prevents them from raising finance.
Meanwhile, Saudi Arabia is about to launch its first sovereign wealth fund, it was reported. The kingdom's Public Investment Fund is in the final stages of creating the vehicle, which will have initial capital of $5.3 billion.
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