LONDON: Sovereign Wealth Funds (SWFs) emerged as saviours of global finance during the 2007-2009 financial crisis with their massive investments in the financial sector, and some euro zone politicians may be hoping that they will again ride to the rescue.
But so far surplus-rich nations that own SWFs have been non-committal, instead preferring to stay on the sidelines to see how events play out.
Australia’s $76-billion SWF said last week it has increased its allocation to cash due to the market turmoil and will wait to see how events play out before putting the money back to work.
“SWFs have gone back to being ordinary investors. It seemed for a period that an injection of funds from large investors such as SWFs might solve the financial crisis, but in retrospect, the problem was larger than anyone thought,” Nugee said.
Asked if SWFs may be interested in investing in French banks, he added: “I think they would like to leave it to governments this time. Actions by third party investors such as SWFs are not the solution to this problem.”
SWF may be shifting towards alternative investments such as infrastructure and property as they reconsider their investment strategies after a decade of equity underperformance against low-yielding fixed income.
That means the $4 trillion sector is unlikely to play white knight to hobbled euro zone banks as it did in 2008, when state-owned investment vehicles ploughed $80 billion into troubled Western lenders.
Sovereign wealth funds, which manage windfall national revenues from oil, commodities or trade surpluses, typically take part of a bond-heavy portfolio from their central bank and buy stocks and alternatives to generate higher returns for future generations.
Their investment style varies widely depending on their objectives — some are portfolio investors like pension or endowment funds while others behave like private equity funds.