Is London the Global SWF Hub?

Ashby Monk

Alistair Darling, Chancellor of the Exchequer, had a rather interesting editorial in the Times today. In it, he makes the case for a reinvigorated City (i.e. financial district). It’s a pretty straightforward argument, which is based on the fact that the UK is absolutely dependent on the competitiveness of London’s financial services industry. However, one comment in particular struck me as rather provocative: he claimed that London manages 50 percent of the world’s SWF assets.

Really? I find this interesting because an October report by International Financial Services London (IFSL) noted that the UK trailed the US in practically all categories of assets under management (conventional funds, hedge funds, pension funds, mutual funds, etc). More significantly, the report decided not to comment on sovereign wealth funds, as it had no reliable data on the global dissemination of assets. Specifically, the report states:

“London is an important centre in the management of sovereign wealth funds assets, although it is difficult to estimate the size of funds managed there due to lack of precise data.”

So, a skeptic could look at Darling’s claim and assume he chose to single out London’s global dominance in SWF management because it could not be substantiated through data!

Nonetheless, let’s give Alistair Darling the benefit of the doubt and assume he actually knows what he is talking about. In this case, why would London have a disproportionately large share of SWF assets under management vis-a-vis the US? I have a couple of guesses:

First, Darling’s calculation may have included the assets that SWFs themselves are managing in London. After all, a number of large funds, including the Kuwait Investment Authority, Brunei Investment Authority, Abu Dhabi Investment Authority, Temasek, GIC and others have offices set up in London. To my knowledge, London has more SWF offices than New York. So, depending on how these offices are tallied up, this could help to explain Darling’s claim.

Second, London may in fact just be a more attractive jurisdiction for SWFs, as it may be perceived to offer more political security than New York. To be sure, US policymakers were much more willing to criticize and scold SWFs in 2007 for a lack of transparency and poor governance practices than were UK policymakers. It’s thus reasonable to assume that this has helped secure London’s place as the SWF hub.

Third, London is closer to the biggest SWFs than is New York. Don’t discount proximity in this equation. My experience is that SWFs require a lot of face time and hand holding, which gives London bankers a leg up on New Yorkers.

I’m sure we could come up with other reasons for this abnormal distribution of SWF assets. However, before we go any further, I’d like to see where Darling got his data.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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