The City of Sovereign Funds

Ashby Monk

International Financial Services London (IFSL) — which ‘promotes the international activities of UK-based financial institutions and professional and business services’ — has just released its latest in a series of reports analyzing the importance of SWFs for the global financial services industry.

Why, you might ask, is the IFSL so interested in SWFs? It’s simple; almost half of all SWF investment directed towards Europe ends up in the UK. When compared with Germany (15%) and France (12%), it becomes obvious that The City has much to gain from the rise of SWFs; it acts as a clearing house and indeed a base for operations for many funds.

Significantly (for London), the IFSL report sees SWFs’ importance on the rise. Projections show that assets under management (AUM) will increase to $5.5 trillion by the end of 2012 (even though it dipped in 2009 down to $3.8 trillion). Still, even at the current level, SWFs exceed private equity ($2.6 trillion) and hedge funds ($1.6 trillion) in terms of size. That said, when compared to pension funds ($30 trillion) and mutual funds ($23 trillion), it is clear that SWFs are in no way the largest force in the geography of finance. Moreover, when compared to past years, PE and HFs seem to be gaining ground on SWFs.

Anyway, I encourage you to read this (and past) IFSL reports, as they typically have very informative charts and tables. For example:

  • Chart 6 shows that the number of investments by SWFs spiked in 2008 and then fell back in 2009 to levels not seen since 2003. This looks like awful timing, as 2008 was one of the worst years in history, while 2009 was one of the best.
  • Table 1 shows that China has overtaken the UAE as the biggest sponsor of SWFs in the world with close to $930 billion in SWF AUM. Indeed, this table suggests that China has 24% of all SWF assets in the world. Given that these assets have been accumulated only in the past decade or so, it is easy to see why many of us (i.e. SWF wonks) have been so fascinated by China’s funds.

3 Responses to “The City of Sovereign Funds”

  1. 1 rien huizer March 3, 2010 at 11:23 am

    London needs the business, so why not define SWF as broadly as you can..

  1. 1 Economic news headlines | Money Supply | Trackback on March 2, 2010 at 1:21 pm
  2. 2 CIC Announces Location of Overseas Office « Oxford SWF Project Trackback on January 13, 2011 at 10:54 am

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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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