Sovereign Wealth Assets To Triple

As oil and gas prices rise, sovereign wealth funds, which own about $3 trillion in assets, may almost triple their investments in the next five years according to research by State Street Corp.

This could lead to an additional $5 trillion of sovereign investments by 2013, according to The Growing Role of Sovereign Wealth Funds issued by State Street, the world's biggest money manager for institutions. The funds' assets will grow 17% a year according to conservative estimates, State Street said.

”Some sovereign wealth funds owe their existence, and most owe their size, to the explosive growth that has recently occurred in official sector assets,'' said John Nugee, head of State Street's official institutions group, and the main author of the report. “Commodities, oil in particular, are one key to this growth.''

The sheer volumes of assets - even the smallest SWF, the Timor-Leste Petroleum Fund is above $1bn - and the speed with which they have grown - the East Timorese fund was set up just three years ago - means the agencies established to manage the funds have to look for external help. "Some sovereign wealth funds have got too much money too quickly and are struggling to manage it," said Nugée.

Record oil prices have swelled the coffers of producer nations including countries in the Middle East, Russia and Norway. Meanwhile, China's runaway trade surplus has pushed its foreign reserves higher, leading last year to the creation of the $200 billion China Investment Corp.

Sovereign funds will likely have increasing power to drive change and corporate restructuring at companies, especially financial services firms, State Street said.

Read the report here.