The World’s Biggest Sovereign Wealth Funds

Sovereign wealth funds have come into prominence over the past few years, most notably for making large cash infusions into private companies desperate for capital during the financial crisis.

These investment giants have also drawn criticism both for large misplaced investments and significant lack of transparency. To get a clearer picture of these entities, Institutional Investorhas ranked the world’s largest sovereign wealth funds by total assets under management along with a look into how they operate.

Sovereign wealth funds (SWFs) are state-owned funds that generally invest fiscal surpluses of government bodies in order to generate long-term returns, both to grow state savings and to maintain stability of a country’s finances. Funding is usually generated by surpluses arising from commodity exports such as oil or precious metals, assets from foreign exchange reserves or other government surpluses.

According to the rankings, the largest US fund is the Alaska Permanent Fund, with assets under management of $34.94 billion, which ranks it 17th in the world, overseeing only a small fraction of the assets compared to the world’s biggest.

So, what are the world’s biggest sovereign wealth funds? Click ahead for the top 10.

By & Institutional InvestorPosted 15 Sept 2010

Assets under management: $113.58 billion
Country: China

Created in August 2000 by the Central Committee of the Communist Party and the Chinese State Council, this fund is composed mainly of capital and equity assets, fiscal allocations of the central government and other investment proceeds, according to the Sovereign Wealth Fund Institute.

As China’s acting national pension fund, it reported a profit of 85 billion yuan ($12.61 billion) in 2009 compared to a loss of 39 billion yuan ($5.79 billion) in 2008. The fund is moving to increase its equity holdings, allocating up to 20% of the fund to overseas investments, such as emerging markets and Europe, and is looking to reduce its bond exposure.

However, the fund still maintains a big domestic focus, investing 15 billion yuan ($2.23 billion) in Agricultural Bank of China’s July IPO. As of September 2010, Institutional Investor estimates that the National Council for Social Security Fund has $113.58 billion in assets under management.

Assets under management: $132.93 billion
Country: Singapore

Incorporated under the Singapore Companies Act as an investment holding company in 1974, Temasek is an Asian investment company based in Singapore holding a portfolio of approximately $132.93 billion, which is concentrated principally in Singapore, Asia and emerging economies.

Temasek Holdings also made notable investments in Merrill Lynch, Barclays and Standard Chartered during the financial crisis.

The new cautious attitude among sovereign wealth funds is most evident in the financial sector, where funds made some of their most prominent investments — and recorded some of their most notorious losses. Temasek reportedly sold its stake in Bank of America last year at a loss estimated at as much as $4.6 billion.

Along with financial services, the fund invests primarily in telecommunications, media, transportation, real estate, industrials, energy and resources, with its only shareholder listed as the Singapore Government, through the Minister of Finance. According to Institutional Investor, the fund is shifting investments toward Asia and away from developed Western economies.

Assets under management: $185 billion
Country: Singapore

Another sovereign wealth fund based in Singapore makes the list, with the Government of Singapore Investment Corp at number eight, with assets under management of $185 billion.

The fund is known to be secretive but are gradually opening up, although they publicly disclose assets only as “well over $100 billion,” and reported a 20% loss in year ended March 31, 2009.

During the financial crisis, the fund was bailed out of its Citigroup position through a favorable conversion of preferred stock but is still nursing a big paper loss on its $10 billion stake in UBS. The fund is pushing heavily into hedge funds, private equity, real estate and natural resources, which made up 30 percent of its portfolio in 2009.

Assets under management: $197.4 billion
Country: Canada

Caisse de depot et placement du Quebec manages the public pension plans for the Canadian province of Quebec and is often referred to simply as “the Caisse” in English.

In August, the fund announced that its weighted average returns for the first half of 2010 amounted to 2.33%, compared to -0.74% for its overall portfolio’s benchmark index. This marked a positive overall return of $4.1 billion in value.

The fund reports that total daily transactions exceed $4.5 billion Canadian, while its assets include over 4,000 businesses internationally and its real estate portfolio makes this fund one of the 10 largest real estate asset managers in the world.

Assets under management: $277 billion
Country: Kuwait

The Kuwait Investment Authority is the parent organization of the Kuwait Investment Office and invests in the local, Middle East and other international markets. The fund faced political demands on their capital to bail out troubled banks and companies in their domestic economies.
During the financial crisis, the Kuwait Investment Authority, under a government-ordered rescue plan, took a 16 percent stake in the struggling Gulf Bank to help the company raise 375 million dinars ($1.3 billion) in emergency funding. The fund injected about 400 million dinars into a dedicated fund created to support the local stock market in the first four months of that year.

Among its notable investments, the fund invested $3 billion in Citigroup during the crisis and sold out for a $1 billion profit in January, but are still underwater on its stake in Bank of America.

Pictured: Managing director of the Kuwaiti investment authority Bader Mohammad al-Saad attends the fourth meeting of the International Working Group of Sovereign Wealth Funds in Kuwait.

Assets under management: $277.46 billion
Country: Hong Kong

The Hong Kong Monetary Authority is Hong Kong’s de facto central bank, holding much of its reserves in U.S. dollars in order to defend Hong Kong’s fixed currency peg to the dollar. Investing mostly in companies listed in the Hang Seng, the fund is also tasked with promoting stability and integrity within Hong Kong’s financial system.

The fund’s new CEO Norman Chan, who took over from Joseph Yam last year, is taking on more risk by increasing investments in equities and dipping a toe into hedge funds and private equity. Chan is considering ways to invest in yuan, which could signal a major shift in Hong Kong’s currency policy. Rising equity markets helped the authority post a 5.9 percent return, or $13.8 billion, in 2009.

Pictured: Chairman of The Hong Kong Monetary Authority Joseph Yam speaks to the press at its headquarters in Hong Kong.

Assets under management: $300 billion
Country: China

China Investment Corp. suffered a backlash at home when its initial 2007 investments – a $3 billion stake in private equity house Blackstone and a $5.6 billion stake in Morgan Stanley – tanked during the financial crisis.

More recently, Chairman Lou Jiwei has been pushing CIC commodities and infrastructure plays. In July 2009, CIC paid a reported C$1.74 billion ($1.5 billion) for a 17.2 percent stake in Teck Resources, Canada’s largest mining and metallurgical company.

The fund posted an 11.7 percent return on its $81 billion global portfolio in 2009, compared with a negative 2.1 percent return in 2008. CIO Gao Xiqing has a doctorate from Duke University Law School and helped draft the securities laws that opened China’s stock market in the early 1990s.

Assets under management: $428.96 billion
Country: Saudi Arabia

Although it is more of a central bank than a dedicated SWF, the Saudi Arabian Monetary Agency (SAMA) manages Saudi Arabia’s foreign currency reserves for liquidity and stability rather than capital gains. SAMA draws its funds from surplus oil revenues and places its most of its investments in relatively low-risk assets, such as sovereign debt.

The agency keeps the bulk of its holdings in U.S. dollars because of the kingdom’s policy of pegging the riyal to the greenback, making SAMA one of the largest overseas investors in U.S. Treasuries.

Governor Muhammad al-Jasser is U.S.-trained economist who has a Ph.D from the University of California and was appointed earlier this year to head a Gulf Monetary Council that aims to introduce a single currency in the six-nation Gulf Cooperation Council.

Pictured: Mohammed al-Jasser, who heads the Saudi Arabian Monetary Authority (SAMA), in Riyadh.

Assets under management: $461.49 billion
Country: Norway

One of the world’s most transparent SWFs, the fund is managed by Norges Bank Investment Management (NBIM), an arm of the Norwegian central bank. The fund is based on wealth produced by surpluses generated by Norway’s North Sea petroleum income and is commonly referred to as “The Petroleum Fund”. The funds are managed in order to meet the needs of future public pension expenditures.

The fund took a hit from the recent weakness in global markets, posting a negative return of minus 5.4 percent in the second quarter of 2010. Leading this drop was the fund’s single worst investment - in BP stock - as shares plunged in value following the oil spill in the Gulf of Mexico.

Under the leadership of Yngve Slyngstad, CEO since January 2008, NBIM has been looking to ramp up returns by taking larger stakes of up to 10 percent in individual companies, up from a previous ceiling of 5 percent, increasing allocations to emerging markets and making long and short bets on global investment sectors and currencies.

NBIM has begun to employ a strategy more focused on analyzing risk factors in order to size up possible opportunities, buying bonds at depressed levels and getting a hefty yield premium for taking on sovereign credit risk.

Other investments include stakes in US and global industrials, such as General Dynamics, Boeing, Raytheon, Lockheed, Rio Tinto, Honeywell and other non-industrials such as Wal-Mart and Barrick Gold. The fund currently does not invest in private equity.

Pictured: Yngve Slyngstad, Chief Executive Officer of Norges Bank Investment Management, gives a press conference to present 2009 first quarter results of the Norwegian Government Pension Fund - Global in Oslo

Assets under management: $627 billion
Country: United Arab Emirates

One of the more-secretive sovereign wealth funds, ADIA has never publicly confirmed the amount of its assets under management, but is far and above the largest SWF in the world, funded by surpluses arising from UAE oil exports.

ADIA was one of the first SWFs to run to Wall Street’s rescue, partly to its regret. The fund paid $7.5 billion for a 4.9 percent stake in Citigroup in November 2007, only to see Citi’s value plunge. More recently, ADIA filed an arbitration claim seeking more than $4 billion in damages, alleging that Citi misrepresented its health.

In response to the crisis, the fund has tempered its risk appetite and increased its allocation to passive investment strategies to an estimated 60 percent from 45 percent in 2007.

Sheikh Ahmed bin Zayed al-Nahyan, the fund’s managing director and brother of the UAE’s president, was killed in a glider crash in Morocco in March. He was succeeded by his brother, Sheikh Hamed bin Zayed al-Nahyan (pictured).

Abu Dhabi’s estimated $10 billion bailout of neighboring emirate of Dubai has dramatically reduced the amount of oil revenue available to ADIA.