GLOBAL – Sovereign wealth funds invest about US$1trn in international equity, less than half the amount of assets under management at the ten largest sovereign wealth funds, a new report found.
The ten largest funds had assets of about $2.2trn at the end of 2008, according to a report by RiskMetrics commissioned by the Investor Responsibility Research Center Institute (IRRC).
In the past, sovereign wealth funds were eyed with caution as governments worried about investors acting on behalf of a foreign government owning local assets.
But the survey showed that estimates about their activity in the marketplace had been over-blown.
The report said: "The current total size of the SWFs and the percentage invested in international equity is less than the figures generally reported in the media. Consequently estimates of their potential impact on the international capital markets are exaggerated."
The study found that the total capital available to sovereign wealth funds has decreased as the global financial crisis has dampened demand for some of the exports these countries rely on to bolster their pots.
BNP Paribas Investment Partners head of central banks, supranational institutions and sovereign wealth funds Gary Smith had told Global Pensions earlier this month that many large sovereign wealth funds did not rebalanced after their assets took a hit. (Global Pensions; October 1, 2009)
As a result, their global equity exposures decreased, while their bond allocations increased.
RiskMetrics' survey coincides with the one-year anniversary of the Santiago Principles, a voluntary code of conduct for SWF's that encourages transparency. The Principles were meant to address the suspicion surrounding the activities of these traditionally opaque investors.
RiskMetrics found that since signing the Principles, about half of the 10 largest funds have adopted meaningful transparency policies.
"SWFs are not inherently 'good' or 'bad.' But, their massive size draws attention and enables the funds to move markets and affect economies," said IRRC program director Jon Lukomnik.
He said: "Adoption of the Santiago Principles last October signalled a recognition by the funds that there was a need to demystify and reassure the global capital markets through increased disclosure and transparency. At this milestone, the report provides encouraging indications that some funds take disclosure and the principles seriously, but much work remains for other funds."
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