With SWF Assets, Confusion Reigns

Recent research by RGE Monitor and The Council on Foreign Relations (CFR) argues that sovereign wealth funds, while still large, aren’t nearly as vast as others might think.


(August 12) – Few would dispute that sovereign wealth funds (SWFs) control large amounts of the world’s institutional capital, but research by the CFR’s Brad Setser and RGE Monitor’s Rachel Ziemba suggests that these government pools of money are not nearly as large as many think.

According to the Sovereign Wealth Fund Institute, total assets at oil- and gas-fueled funds amount to $2.2 trillion, while total worldwide sovereign fund wealth adds up to $3.6 trillion. Not so, say Ziemba and Setser, prominent industry analysts who have been following SWF assets for some time. According to them, the numbers are more like $1.2 trillion and $1.5 trillion.

Ziemba and Setser focus foremost on the Arabian Gulf funds to discern where others have gone wrong. “First, we continue to believe that the foreign assets of Abu Dhabi’s two main sovereign funds – The Abu Dhabi Investment Authority (ADIA), and the smaller Abu Dhabi Investment Council (which was created out of ADIA and manages some of ADIA’s former assets) – are far smaller than many continue to claim,” the authors state on RGE’s web site. Instead of the approximately $650 billion that the SWF Institute suggests, the authors estimate that the actual size is of the two funds is closer to $360 billion.

The authors also focus on the opaque Chinese fund system. “The dividing line between China’s sovereign fund and China’s state banks isn’t totally clear,” they state. Because of this, they claim that many estimates include central bank-control assets, which in their view should not be included in any sovereign wealth totals.

The authors’ final focal point is stabilization funds, especially those in Russia and Saudi Arabia. “We would argue that stabilization funds that are managed by the central bank and counted as part of the country’s reserves should be considered reserve assets – and not included in the total for sovereign funds,” they say. “If it walks like a duck (is managed by the central bank) and quacks like a duck (is invested predominantly in traditional reserve assets), it is a duck.”

Despite their views that SWF totals are vastly overstated, the authors’ do claim that such funds have rebounded from their December 2008 lows. Oil funds, they suggest, have risen by $71 billion since the end of last year, while Asian funds are up $36 billion to a total of $370 billion. Total sovereign funds, they believe, are up $107 billion from their December low of $1.425 trillion.

To read more on Gulf sovereign wealth funds in ai5000, click here .

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>