Will they, wont they? That’s the question facing all those waiting to know whether Sovereign Wealth Funds (SWFs) will come to the rescue of beleaguered banks, financial institutions and other businesses across the Western hemisphere. For these investment vehicles, mandated by governments to manage reserves, the situation is a far cry from the days, not so long ago, when they were looked upon with suspicion, and even accused of having a political agenda. Now that the world of finance is on its knees, their former detractors view SWFs as the last hope for the financial sector.
The reason: assets under management in SWFs are set to surge fourfold by 2011 from $1.9 trillion to $7.9 trillion. So says Merrill Lynch, which is ironic considering that it too has had to be rescued from bankruptcy. Financial market research house CB Richard Ellis, forecasts SWFs to become one of the most significant investors in the world’s commercial property markets, potentially investing $725 billion over the next seven years. The Sovereign Wealth Fund Institute says Middle Eastern SWFs account for four of the top six commodity-based funds, worth an estimated $1.74 trillion.
Mixed signals have emerged, so far, from the managers of these funds – depending on where they stand on their investment cycle, mandate and depth of their pockets. However, considering the general opacity surrounding the way SWFs operate, few details are expected to emerge. Chances are, despite recently announcing an accepted principles and practices code (called the Santiago Principles), to ensure greater levels of public disclosure – SWFs will become even more secretive, going about their business silently.
That’s probably because it has been a case of once-bitten, twice-shy for SWFs in recent months. Some of their major investments in the United States have fallen flat on their faces. The Abu Dhabi Investment Authority (ADIA), for instance, purchased a 4.9 percent stake in Citigroup for $7.5 billion last year. At last count, the investment had lost almost half of the value, to $3.4 billion at time of press. Another example is the $3.5 billion investment by China Investment Corporation (CIC) in private equity firm Blackstone, which has lost 40 percent of its value since last year.
The real problem for these funds, in-dustry watchers say, is more on the transparency front, not the quality of the returns they’re getting. “If the SWFs were more consistent about releasing information on their portfolio those paper losses could be computed,” says Edwin M. Truman, a senior fellow at the Washington-based Peterson Institute for International Economics.

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