This post is by Brad Setser and Rachel Ziemba of RGE Monitor
A score of recent reports have put the total assets managed by sovereign wealth funds at around $3 trillion. That seems high to us – at least if the estimate is limited to sovereign wealth funds external assets.
We don’t know the real total of course. Key institutions do not disclose their size – or enough information to allow definitive estimates of their size. But our latest tally would put the combined external assets of the major sovereign wealth funds roughly $1.5 trillion (as of June 2009) – rather less than many other estimates. This portfolio of $1.5 trillion does reflect an increase from the lows reached of late 2008. But it is well below the estimated $1.8 trillion in sovereign funds assets under management in mid 2008. Significant exposure to equities and alternative assets like property, hedge funds and private equity led to heavy losses by most funds in 2008 – a fact admitted by many of the managers.
$1.5 trillion is lot of money. But it is substantially less than $7 trillion or so held as traditional foreign exchange reserves.
There are three main reasons for our lower total.
First, we continue to believe that the foreign assets of Abu Dhabi’s two main sovereign funds – The Abu Dhabi Investment Authority (ADIA), and the smaller Abu Dhabi Investment Council (which was created out of ADIA and manages some of ADIA’s former assets) – are far smaller than many continue to claim.* Our latest estimate puts their total size at about $360 billion. That is roughly the same size as the $360 billion Norwegian government fund – and more than the estimated assets of the Kuwait Investment Authority (KIA) and the combined assets of Singapore’s GIC and Temasek. Our estimate for the GIC’s assets under management is also on the low side.
To be sure, Abu Dhabi’s total external assets exceed those managed by ADIA and the Abu Dhabi Investment Council. Abu Dhabi has another sovereign fund – Mubadala and a number of other government backed investors. Its mandate has long been to support Abu Dhabi’s internal development (“Mubadala [was] set up in 2002 with a mandate not only to seek a return on investment but also to attract businesses to Abu Dhabi and help diversify the emirate’s economy) but it now has a substantial external portfolio as well. Chalk up another $50 billion or so there. Sheik Mansour’s recent flurry of investments also has made it clear that not all of Abu Dhabi’s external wealth is managed by ADIA, the Council and Mubadala. The line between a sovereign wealth fund, a state company and the private investments of individual members of the ruling family isn’t always clear. Abu Dhabi as a whole likely has substantially more foreign assets than the $400 billion we estimate are held by ADIA, the Abu Dhabi Investment Council and Mubadala. And despite Dubai’s vulnerabilities, it still holds a good number of foreign assets, even if its highly leveraged portfolio has suffered greatly in the last year.