Sovereign Wealth Funds

By THIS IS MONEY
Updated:

 

We explain Sovereign Wealth Funds

What are they?

Government investment vehicles set up by countries that are awash with cash. Think China and the Middle East. Much of the money is flowing into state coffers as the oil price soars.

What do they do?

Invest. Traditionally, state money was stashed away safely in US Treasury bonds. But as cash reserves mount up, sovereign wealth funds are chasing better returns and are becoming much more active investors. Hence Dubai buying up ports operator P&O and China's £1.5bn investment in private equity firm Blackstone.

How much do they have?

Plenty. Morgan Stanley estimated recently that such funds could be worth £1.25trn, already much larger than the global hedge fund industry at £1trillion - and that was before the summer's credit crunch.

What happens next?

A scaling up of activity. Unlike average private equity firms, sovereign wealth doesn't need to rely so heavily on the debt markets. However, that does not make them universally successful.

Qatari fund Delta Two has yet to reach a breakthrough in talks to take over J Sainsbury. And Singaporean fund Temasek appears to have lost interest in buying Nasdaq's 31% stake in the London Stock Exchange.

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