Sovereign wealth funds are slowly putting their $4trn to work in new asset classes, as Emma Cusworth reports
The question of MENA instability
Political unrest in the Middle East and Africa could have consequences for how a sizeable chunk of SWF assets are managed with potentially significant implications for the broader market.
The $70bn Libyan Investment Authority (LIA) was able to invest more freely in international markets following the easing of international sanctions and restrictions. It now holds considerable UK real estate allocations and $1.5bn in international equities, including 2.6% of UNICredit, 7.5% of Juventus Football Club and 2% of Finmeccanica. In 2010 The Libya Africa Portfolio for Investments, an LIA subsidiary, made a significant allocation to UK-based hedge fund FM Capital.
Countries including the UK, EC, US and Japan have frozen Libyan assets, including those of the LIA and Central Bank. With Western forces in action over Libya and Colonel Muammer Gaddafi promising a long drawn-out war, the future of Libya’s international assets may remain uncertain for some time.
It is still unclear whether recent events will result in changes of mandate or investment policy for Bahrain’s $9.1bn Mumtalakat Holdings Company or Algeria’s $61bn Revenue Regulation Fund.
According to JP Morgan Asset Management’s global head of sovereigns, Patrick Thomson: “These funds are normally run by civil servants and will still be needed long-term. We do not therefore expect them to change materially if there is regime change.”
So far, political instability has not caused other SWFs to sell or raise liquidity.
According to Yngve Slyngstad, CEO of Norges Bank Investment Management, which manages the Norwegian Government Pension Fund Global: “The fund has 0.5% of assets invested in the Middle East. The direct result is quite small. The indirect effects, through the energy markets and prices there, is a very complex question that we don’t know the answer to.
“Developments in Turkey have been enormously positive during the last decade. If we can get anything similar in the Middle East, that would give rise to vast potential. Ten years from now, I’m convinced we’re going to have higher levels of investment in the Middle East than we have today.”
As a key driver of aggregate reserve levels, the continued hike in oil and commodity prices could further boost SWFs’ influence as the creation of many SWFs in Africa and the Middle East are directly linked to high oil prices.
