Staggering Growth at Sovereign Wealth Funds
Sovereign wealth funds more than doubled their global spending spree last year. Looking ahead, The IMF says that these investment vehicles funded by a country’s foreign reserves could quadruple in size to roughly $13 trillion by 2012 thanks to soaring oil prices and huge growth in emerging markets. The growth has caught the attention of regulators, politicians, investment banks and economists around the world. Overseas investment by sovereign wealth funds and its impact on the global economy is high on the agenda at next week’s World Economic Forum at Davos.
Now, as the credit crisis deepens, investment bankers hope sovereign wealth funds will step up to fill the void in M&A activity, funneling cash to companies in distress and adding tremendous liquidity to the markets in which they invest. Executive search firm, A.E. Feldman, says the growing trend is likely to trigger a wave of hiring. Investment banks are not only altering their work to reflect the growing importance of sovereign wealth funds, but the funds themselves are recruiting globally due to a shortage of local professionals with experience investing abroad. Opportunities include risk management jobs, compliance manager jobs, asset management positions and public relations officers.
Gulf Funds
Saudi Arabia has plans to establish a sovereign wealth fund that would exceed $900 billion, according to the Financial Times. The fund, likely to be the largest in the world, will be a rival for other government-owned investment funds in the Middle East and Asia, which have been investing in western financial institutions that have suffered losses stemming from the subprime meltdown.
Meanwhile, in a recent report, Business Week states that the head of the Kuwait Investment Authority manages $213 billion on behalf of his government. The fund’s portfolio is constantly replenished with money that flows into Kuwait in exchange for the oil that flows out. And as oil prices soar, Kuwait’s coffers are swelling. BusinessWeek notes however, that Gulf funds have begun taking on more risk in an attempt to build the foundations for new, diversified, post-oil economies.
Gulf funds have recently bought large stakes of Citigroup (C), the private equity giant Carlyle Group, Advanced Micro Devices (AMD), European Aeronautic Defense & Space (EADS), and many other big companies, according to Business Week. The report also states that Gulf funds are getting into leveraged buyouts, despite having little experience operating companies. BusinessWeek quotes David Rubenstein, a founder of Carlyle, which sold a 7.5% stake to an Abu Dhabi fund in September, as saying, “Large sovereign wealth funds have become major players in private equity, not only as investors but also as competitors. They will be the industry. We will be working for them.”
Investment Banks Boosting Coverage
As deal activity by sovereign wealth funds increases, investment banks are altering their work to reflect their growing importance, according to Dow Jones Financial News. The report quotes Guy Cornelius, Managing Director at Lehman Brothers, as saying, “Sovereign wealth funds rank among our most important clients, but one of the considerations when thinking how to serve them is that they are unique in their size, investment approach or geographic spread. One size does not fit all.” As a result, investment banks are growing their dedicated sovereign coverage teams.
Morgan Stanley research shows that there are 29 countries with sovereign wealth funds, according to Dow Jones Financial News. Oil and gas resources fund 73% of them, primarily from emerging markets. The only developed countries with these funds are Norway, Canada and the U.S., thanks to oil in Alaska. The IMF says that about one-third of sovereign wealth funds’ total assets are held by Asian and Pacific countries, including Australia, China, and Singapore.
