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AUM at global sovereign wealth funds top $5 trillion

Real estate likely beneficiary of growing investor firepower.

This year, sovereign wealth funds have grown at their fastest rate since 2007, adding $750 billion to assets under management in the year to October. A recent study by alternative assets research firm Preqin shows that total assets under management in sovereign wealth funds globally now exceed $5 trillion, having increased from $4.62 trillion to $5.38 trillion over the last year. “Despite the challenging financial landscape and political unrest, sovereign wealth funds have continued to thrive and grow, and this trend is predicted to continue over the next few years,” says Amy Bensted, head of hedge fund products at Preqin. “We are still seeing new launches of sovereign wealth funds, with many countries approving plans for new launches over 2012 to 2013. There remains the possibility that some sovereign wealth funds many 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.”

These figures underscore the growing presence of sovereign wealth funds in many alternative asset classes and their importance will only increase. Fifteen new sovereign wealth funds have been set up since 2008, eight of which were established in the last two years. These include the Western Australian Future Fund, which was set up in December 2012, and the Fundo Soberano de Angola that was set up in October last year. The sector is still dominated by Norway’s Government Pension Fund, which now has $775.2 billion in assets under management – an increase of $185 billion since 2012.

The growth in this investor class is also good news for the real estate and infrastructure sectors, which provide the kind of long-term income streams that many of these funds are looking for. According to the Preqin survey 57% of all sovereign wealth funds globally allocate to infrastructure and 54% to real estate. The appetite for real estate rises in MENA, North America and Asia-based funds to 81%, 80% and 75%. The allocation to private equity and hedge funds has fallen from 57% and 38% respectively last year to 45% and 31%. This can, however, be partially accounted for by new players in the space which are less likely to allocate to these types of alternative assets in their first few years of establishment.

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