SWFs: Go Long!

Ashby Monk

I came across a rather surprising statistic this morning. Apparently, one out of every two SWFs is today investing in private equity, real estate or infrastructure:

“55 percent of the funds are known to invest in private equity, 51 percent in real estate and 47 percent in infrastructure,” according to Preqin.

I’m a little bit shocked by this. This implies that a significant portion of SWFs have no exposure to these assets.

Remember, these are the longest-term investors in the world. With no liabilities, they are perfectly suited to these types of illiquid investments. In fact, in our survey of SWFs’ own asset managers, we asked, relative to the 55% equities, 35% debt, and 10% alternatives standard, which asset class should be overweighted. Most of our respondents chose to overweight alternatives; i.e. SWFs (in the eyes of professional asset managers) should have more than 10% of their assets in alternatives.

And yet, some SWFs have 0% of their assets in alternatives? Why? It’s tough to pin it to any one thing. Perhaps the government employees running the SWF are just too conservative? Perhaps they don’t have the necessary internal competencies to make these types of investments? Perhaps their original mandate forbade these types of transactions? Perhaps the funds avoid these illiquid assets so as to be able to act quickly if the government has need for the money?

Whatever the reason, it’s a missed opportunity for SWFs.

3 Responses to “SWFs: Go Long!”

  1. 1 rien huizer March 10, 2010 at 9:11 pm

    Another curious point in this survey (I looked only at the free bits) is that apparently only 79% of what they consider to be SWFs invest in public equity or fixed income. Surely there must be something wrong with a “fund” that does not invest in the two most transparent asset classes (exc cash). Another thing is that apparently to get to a large enough number of SWFs to justify some form of overall statistical treatment, they use no :high pass” filter, with the consequence that a fairly large number of totally irrelevant funds of less then 50 bn (equivalent to the amount of assets a typical 5 bn hedge fund would control with ease) are mixed with large and significant entities. If I take the SWF institute table (who include SAFE, NSSF and Temasek, borderline cases) only 11 funds are over 100 bn and 14 over 50. There is only one OECD and/or democracy case in the top 10 (Norway), and 2 (Australia, another borderline case) in the top 15.

    So, these statistics do mot mean a lot, except that there may be quite a few that have naturally limited scope and/or capacity.

  2. 2 Ashby Monk March 11, 2010 at 10:07 am

    That’s a really good point. 79%? That’s just bizarre.

  1. 1 Deep Thoughts by Adrian Orr « Oxford SWF Project Trackback on August 30, 2010 at 12:24 pm

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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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