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Wealth funds increase assets despite falling oil prices

Alternative assets industry data collector reveals reasons behind the growth of SWFs

A sharp drop in oil prices in 2014 has not affected the investment spree of wealth funds worldwide, or so it seems.

Some 59 per cent of sovereign wealth funds (SWFs) have increased their assets in 2014, despite a fall in oil prices. Assets under management of SWFs have expanded by more than $900 billion (AED 3.3 trillion) over the past 18 months, reaching $6.31trn (AED23.15trn), says a new report from alternative assets industry data collector, Preqin.

“The influence of sovereign wealth funds in undeniable. These firms now manage more than $6.3trn in assets, which have grown 17 per cent over the past 18 months. This growth has also been in the headwind of falling oil prices, one of the main sources of funding for these institutions,” says Amy Bensted, Head of Hedge Fund Products, Preqin.

The growth in assets has been driven by continued funding from governments, reserves and investment returns.

A total of 73 sovereign wealth funds have been established worldwide.

Forty-six countries have at least one sovereign wealth fund. Norway-based Government Pension Fund Global is the largest sovereign wealth fund worldwide with $818bn in assets under management. This is followed by the Abu Dhabi Investment Authority, with an estimated $773bn in assets.

Alternative assets are also becoming an important part of these institutions’ portfolios, particularly as they seek to diversify their portfolios and acquire assets that can generate yield and help meet their long-term objectives.

According to Preqin data, 70 per cent of SWFs invest in at least one alternative asset class, with 60 per cent of these institutions investing in real estate and infrastructure.

“While these institutions (SWFs) have significant investments in traditional public equity and fixed income markets, sovereign wealth funds are a growing source of capital to alternative asset fund managers and investments across the globe,” adds Bensted.

Asia-based sovereign wealth funds currently manage $2.7trn in assets (43 per cent of all sovereign wealth fund capital), compared with $2.0trn managed by Middle East-based institutions, reveals the report.