Sovereign Wealth Funds Up 18% In 2007 to $3.3 Trillion

Implications: Sovereign Wealth Funds (SWF) grew by 18% in 2007, with a global share of 36% and early projections suggest SWFs could grow to $5 trillion by 2010. In 2007, SWFs invested $49 billion in M&A deals, which is an increase of 165%. Russia, Asia and the Middle East has played a key role in bailing out banks and other businesses from the escalating subprime woes in the U.S. and Europe. GIC, the investment arm of the Singapore Government invested $8.9 billion into UBS in December 2007 and Singapore based Temasek rescued Merrill with a $5 billion investment. Other benefactors of SWFs include a $5 billion investment into Morgan Stanley by China Investment Corp. and Abu Dhabi's SWF invested $7.5 billion into Citigroup in November 2007. During the first three months of 2008, SWFs invested more than $24 billion in the U.S., Europe and the U.K. and could exceed 2007 investment totals, with plans to add roughly $1 trillion or more in sovereign investments each year over the next three years.

Analysis: Sovereign Wealth Funds has acquired a special taste for banks, brokers, stock exchanges and asset managers who may be looking for partners who can open global doors. In 2007, sovereign wealth funds invested more than $3.3 trillion in the U.S., Europe and the U.K., which is up by 18%. Sovereign Wealth Funds based in China, Russia and the Middle East are injecting billions into the financial services industry and other sovereign investments. With the increase in investments by sovereign wealth funds in the U.S. and Europe, comes increased scrutiny in Europe by regulators and by U.S.  lawmakers who want to ensure sovereign wealth funds aren't driven by political decisions.

1.  The IMF (International Monetary Fund) has endorsed plans to develop "best practice guidelines" for sovereign wealth funds and will meet with wealth funds this month to address concerns about the increasing size of wealth funds and perhaps to gain greater transparency into sovereign wealth funds' investment strategies and assets 

2.  Revenue from oil exports in the Middle East and an increase in foreign exchange reserves in some Asian countries has contributed to sovereign wealth funds growth over the last year. Sovereign Wealth Funds funded by oil and gas exports totaled $2.1 trillion in 2007

Takeaway:  The U.K. views Sovereign Wealth Funds as an opportunity to shore up investments, however, in the U.S. lawmakers are concerned about the billions of dollars that have been poured into Wall Street banks and other businesses and fears have surfaced that the U.S. could be losing control of its dominant position.