Sovereign Wealth Funds to see another boom in 2008

Updated: 2008-01-13 14:21

After a booming year in 2007, Sovereign Wealth Funds (SWFs) are expected to see another year of marked growth in their investment in 2008, said a researcher Sunday.

The SWFs are pools of money derived from a country's foreign reserves, which are set aside for investment purposes to benefit the country's economy and citizens.

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Accumulated as a result of budget and trade surpluses, they typically have a higher risk tolerance and high expected return than traditional official reserve management.

Currently 36 countries or regions have their SWFs, with some $2.5 trillion of assets under their management, bigger than the sums invested in hedge funds and private equity funds, according to a report by the Standard Chartered.

Abu Dhabi of the United Arab Emirates has what experts believe the world's biggest SWF, with an estimated value of $900 billion. Meanwhile, recent news report said Saudi Arabia plans to establish a SWF that is expected to dwarf Abu Dhabi's assets to become the new number one in the world.

These funds, though still much smaller than official foreign currency reserves of their owner countries, are expected to grow rapidly to exceed the reserves in a few years, said Yuan Huaizhong, a researcher at the Research Institute for Fiscal Science, a leading financial research body in China.

If they keep growing at their present pace, their total value would reach $13 trillion over the next decade, predicted Martin Wolf, chief economic observer of the Financial Times.

The SWFs, owned by sovereign entities in countries such as Singapore, Russia, Norway, Japan and China, have contributed significantly to the world economy, said Yuan.

They have played an increasingly active role in channeling capital to companies in need, adding tremendous liquidity to the markets they invest in and helping countries with the optimal allocation of resources, he said.

The SWFs usually adopt a long-term approach, and choose to invest in economic entities, said the researcher.

With their operations more stable than other funds, they bring more benefits to greater numbers of countries and their people, he said.

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