The world's sovereign wealth funds manage total assets of $5.38 trillion, but are putting less of that money into hedge funds and private equity.
Data provider Preqin said sovereign wealth funds have added over $750 billion to their coffers since 2012. The increase in AUM can be accounted for in part by an increase in the number of sovereigns (eight new funds have been formed in the past two years) and in part by the capital injected into existing funds.
But whereas in 2012, 57% of sovereigns were invested in private equity and 38% in hedge funds, those totals now stand at 45% an 31%, respectively. Prequin blames some of the decline on the increase in the number of sovereigns, as new funds generally spend a few years building investment teams and accumulating assets before allocating to alternatives.
Asia-based sovereigns reported some of the strongest growth, their assets rising on average by 19% since 2012, while those of Middle Eastern funds rose 6%. Asia-based funds now account for 47% of total sovereign fund assets despite representing only 22% of sovereign wealth funds by number.
The largest sovereign wealth fund is Norway's Government Pension Fund-Global, with $775.2 billion in AUM (an increase of $185 billion since 2012).
“Despite the challenging financial landscape and political unrest, sovereign wealth funds have continued to thrive and to grow, and this trend is predicted to continue over the next few years,” said Preqin's Amy Bensted in a statement. “We are still seeing new launches of sovereign wealth funds, with many countries approving plans for new launches over 2012-13. There remains the possibility that some sovereign wealth funds may be required to cover fiscal shortfalls of governments but overall the outlook for this investor group appears positive. The level of capital flowing into alternatives from sovereign wealth funds remains extremely significant. Once the newly established sovereign wealth funds become more developed, we could see a number of new allocators to the space.”