In the midst of collapsing oil prices, oil-funded sovereign wealth funds (SWFs) are under pressure to liquidate assets, according to political risk advisory firm GeoEconomica.
There was roughly a 20 per cent fall over the past year in the deposits and reserves stored in the Saudi Arabian Monetary Agency (SAMA) by the Saudi government, according to estimates. This suggests that oil giants such as Saudi Arabia are now seeking to protect their budgets against dramatically declining revenues.
SWFs are managed separately from a county’s official currency reserves. They are pools of money the government stores in funds or corporations to generate profits.
The funds have an original purpose of reducing the volatility of government revenues and help counter any drops in the national economy.
Of total assets around the world, $4.9 trillion comes from oil and gas SWFs, which are funded by revenues from energy exports.
The most prominent examples of these are in oil-rich countries like Norway, Kuwait and Saudi Arabia. These types of funds are designed to act as a buffer to oil price volatility, as currently seen in markets.
With dropping oil prices impacting the GCC region, we take a look at the top 10 SWFs in the world so far this year.
1. Norway’s Government Pension Fund Global
With a total worth of $847.6bn, Norway has the world’s largest SWF.
The fund comes mostly from the Scandinavian country’s oil revenues and, after accounting for management costs and inflation, generated an annual return of 3.8 per cent between 1988 and 2014.
To boost its real estate portfolio, the fund has also been investing in properties worldwide over the last few years. These include a $576m investment in London’s prime district Mayfair and investing in 45 per cent of a 40-storey office block located in Time Square, New York.
Overall, the fund has extended its investments to 9,000 companies in 75 countries.
2. Abu Dhabi Investment Authority
Established in 1976, the Abu Dhabi Investment Authority (ADIA) currently manages assets worth $792bn.
Being the largest SWF in the Middle East, its main source of funding comes from oil exports.
However, ADIA also holds stake in a number of other projects including a 50 per cent stake, worth $2.4bn, in three Hong Kong hotels. Earlier this month, the group invested $150m in Indian renewable energy firm, Greenko.
Similar to its Gulf neighbour Saudi Arabia, ADIA has a stake in the London’s Gatwick airport and Norwegian gas company Gassled.
The fund has extended its investments across 24 asset classes and has had a 7.4 per cent annualised rate of return in the last 20 years.
3. China Investment Corporation
The China Investment Corporation (CIC) currently holds assets worth $746.7bn and is the largest non oil-dependent SWF.
The CIC has a diverse range of global investments including its stake in London’s Heathrow Airport and British utility firm, Thames Water. It also owns the London headquarter of Deutsche Bank.
Established in 2007, CIC has been responsible for managing part of Chine’s foreign exchange reserves and is the country’s flagship SWF.
There have been reports that this group was founded following a bureaucratic spat between the Chinese Ministry of Finance and China’s Central Bank.
4. Saudi Arabian Monetary Agency
Controlled by the country’s central bank, Saudi Arabian Monetary Agency (SAMA) consists mostly of Saudi’s surplus petro-dollars.
Although most of the wealth held by the fund is derived from the country’s oil revenues, it also manages certain Saudi public pensions.
Holding assets worth $598.4bn, the fund is said to have invested in a diverse portfolio including cash deposits, fixed income and equities.
5. Kuwait Investment Authority
Established in 1953, Kuwait Investment Authority (KIA) is the oldest SWF in the world.
Currently holding $592bn worth of assets under its management, the fund derives most of its wealth from the state’s surplus oil revenues.
With a long-term goal to provide “an alternative to oil reserves, which would enable Kuwait’s future generations to face the uncertainties ahead with greater confidence,” as written on its website, the group has invested into various global projects.
This includes the fund’s stake in London City Airport and Dubai Parks.
6. Hong Kong’s State Administration of Foreign Exchange Investment Company
The SAFE Investment Company, established in 1997, is the Hong Kong subsidiary of China’s Administration of Foreign Exchange (SAFE).
With the main purpose of managing China’s foreign currency reserves, the fund is known for its investments in foreign listed companies. These include European companies ARM Holdings, Telecom Italia and Fiat Chrysler. The group also holds stakes in banks in Australia and New Zealand.
SAFE Investment Company currently has around $474bn under management.
7. Hong Kong Monetary Authority Investment Portfolio
Managed by the city-state’s monetary authority, the Hong Kong Monetary Authority (HKMA) is used to support the Hong Kong dollar and manages $442.4bn of assets.
HKMA was created in 1993 to manage the Exchange Fund, following the merger of the Office of the Exchange Fund and the Office of the Commissioner of Banking.
“The Exchange Fund’s primary objective…is to affect, either directly or indirectly, the exchange value of the currency of Hong Kong,” the fund says on its website.
It focuses its investments primarily in the bond and equity markets of OECD countries.
8. Government of Singapore Investment Corporation
Being one of the older funds on this list, the Government of Singapore Investment Corporation was established in 1981.
Most commonly referred to as GIC, the fund now manages $344bn worth of assets.
Having profited heavily from the country’s high savings rate in the 1970s, the funds reserves have grown rapidly.
Currently holding investments in over 40 countries, GIC’s website says that the fund was set up to “preserve and enhance Singapore’s foreign reserves for the future.”
9. Qatar Investment Authority
Established in 2005, the Qatar Investment Authority was founded with the aim to invest revenue from the country’s significant budget surpluses.
Qatar is one of the largest exporters of liquefied natural gas, with state gas reserves that, according to the Qatar National Bank, would last another 138 years at the current rate of production.
The SWF currently manages $256bn worth of assets.
The group says that it has “built a major global portfolio that now spans a broad range of asset classes and regions.”
10. China’s National Social Security Fund
Primarily set up as a solution to the country’s rapidly aging population, China’s National Social Security Fund currently manages $236bn of assets.
Serving to “supplement and adjust the social security spending during the peak time period of the ageing of population”, this is one of China’s four SWFs.
Waiting for the effects of its 1970s one-child policy to hit home, China is currently battling with the extra costs of an elderly population.