LONDON // Sovereign wealth funds saving for future generations are regaining appetite to invest in real assets which bring income and capital gains, the global head of sovereigns at HSBC Global Asset Management says. Cynthia Sweeney Barnes, who heads the team advising sovereigns and supranationals, said her firm has won billion-dollar-plus mandates from sovereign wealth funds since the start of this year.
State-owned investment funds, largely from emerging markets, make up an estimated $3 trillion industry which manages national windfall earnings from sources such as oil, commodities and trade surpluses. They have become big casualties of the credit crisis after pouring some $80 billion into banking shares, only to see the value of their investments crash within months. But with resource prices and export levels rising, growing confidence in an imminent economic recovery is putting sovereign wealth funds (SWFs) under pressure to seek returns again on their investment to save for future generations.
"Since the end of the first quarter there has been less turbulence associated with the pace of the economic decline. Sovereign funds continue to have inflows," Sweeney Barnes said in an interview late last week. "They are also under pressure, in the low interest rate environment, to invest in line with their mandates. They will eventually need to invest. Otherwise you might as well return that money to the central bank."
Sweeney Barnes said SWFs like real assets with dependable income streams and capital gain potential such as real estate and infrastructure. SWFs employ HSBC Global Asset Management's portfolio management services in areas including Euro zone and emerging market fixed income, real estate and Asian equities. "SWFs with an intergenerational savings brief can invest with a very long-term horizon," Sweeney Barnes said.
"It just makes sense to save for a rainy day. And we all know rainy days do come." According to a recent report on the sector by Deutsche Bank, typical equity portfolios held by SWFs may have lost 45 per cent between end-2007 and early 2009, reducing overall portfolios by 18 per cent. In its 2008 annual report, China Investment Corp, the country's $200 billion SWF, said it has ample cash on hand to take advantage of investment opportunities that may arise this year.
The CIC also said it is investing mainly in financial products, less in direct investment. *Reuters
