By Simon Miller
Sovereign wealth fund assets under management in the UK grew to nearly $5trn (£3.2trn) in 2011 according to figures from TheCityUK.
The financial services promoter’s Sovereign Wealth Funds 2012 report found that SWF assets under management climbed for the third-year running to a record $4.8trn in 2011, a trend that is predicted to continue growing to $5.2trn by the end of 2012.
In addition there was an additional $7.2trn held in other sovereign investment vehicles such as pension reserve funds, development funds and $8.1trn in other official foreign exchange reserves.
As a result, the 17% global share of direct SWF investment in the UK is bigger than France, Germany and Spain combined.
TheCityUK said the UK was an important centre for SWFs as a key location from where some of the funds are managed. A number of funds from Kuwait, Brunei, Singapore and United Arab Emirates have representative offices in London. In addition, it was a clearing house for SWF transactions; and a major recipient of investment funds - the UK’s 17% of global SWF investments in the past six years was second only to the 19% share of the US.
Marko Maslakovic, senior manager, Economic Research at TheCityUK, said: "The UK is the leading destination for SWF investments in the EU, attracting more capital than France, Germany and Spain combined. The most recent example is the acquisition of nearly 9% of the holding company for Thames Water by the China Investment Corporation, the fund’s first major share purchase in the UK.”
Direct investments of SWFs totalled $60bn in 2011, down a quarter on the previous year and 40% below the peak level in activity two years earlier. Companies in the financial services sector, energy and utilities/infrastructure received most of the funding. SWF Institute data shows that the financial services sector was the largest recipient of direct investments in the six years to 2011, accounting for over a third of more than $400bn invested during this period.
Recent transactions suggest that SWFs remain cautious, equity purchases are smaller and more diverse with more focus on diversifying portfolios. Emerging market countries have accounted for a growing share of investments since 2009, a trend that is likely to continue.