Sovereign wealth funds face new global environment

Abstract

Subject Outlook for sovereign wealth funds. Significance The world's largest sovereign wealth funds (SWFs) manage more than 3 trillion dollars in assets, but budgetary pressure from lower oil prices is causing Saudi Arabia and others to dip into the funds. Even with some outflows, SWFs remain large strategic investors, and their investment decisions have important effects. China is investing in infrastructure in its neighbouring countries and expects the SWFs to cooperate with the Silk Road Fund (SRF), a new state-backed private equity fund. Impacts If oil-producing countries' SWFs sell assets massively, there may be disruptions in the affected markets. The largest SWFs' growing focus on risk management leaves them better positioned to manage funding challenges and withdrawal risk. Strategic asset allocation will be further directed to meet the strong demand for infrastructure investment in emerging markets. Banks that have brokered deals for SWFs will need to find new customers to compensate for the reduced business. A search for yield may reverse the trend of a falling share of SWFs assets being managed externally, benefiting asset management firms.