FONDOS SOBERANOS: 10.1 TRILLIONS

de la lista macroperu

SWF, central bank assets to reach $12 trillion by 2012
By Rita Raagas De Ramos | 12 November 2008

Merrill Lynch expects central banks to ease up on accumulating
reserves and transfer more funds to sovereign wealth funds.


Assets under management of sovereign wealth funds (SWFs) and central
banks are expected to rise to $12 trillion in 2012 from around $10.1
trillion at present, according to Merrill Lynch's latest report on
SWFs.

Central banks now control $7 trillion of reserves, up $1.3 trillion
from a year ago. SWFs, meanwhile, manage around $3.1 trillion
including the $2.5 trillion managed by the largest of such funds.

Merrill Lynch expects assets held by SWFs to surge over the next
four years, to $8.5 trillion by 2012, while it expects central bank
reserves to ease.

"The central bank tap is now being turned off," says Merrill Lynch
in a report. "The era of rapid central bank reserve accumulation is
now over, in our view. An intensified push toward rebalancing,
satiated demand for reserves, and acquiescence of currency
appreciation support this."

The top 20 central banks, 17 of which are from emerging markets, now
control around $5.9 trillion of reserves. The increase is due to
fresh reserve accumulation, investment proceeds of existing
reserves, fund transfers and mark-to-market changes.

The big three central banks – China, Japan and Russia – remain at
the top, with China's central bank reserves up $473 billion on last
year to $1.9 trillion, despite a $200 billion shift of funds to
China Investment Corporation, the newly created SWF.

Japan 's central bank reserves of $976 billion remain fully invested
in US dollars, and register increases in value from bond yield
returns.

Merrill Lynch notes the reasons why it expects central banks to
cease any sharp accumulation of reserves.

First, a severe shortage of US dollars globally – caused by the US
financial crisis that spread to the rest of the world – has lead to
repatriation of US dollars back to the United States, and sharp
downward pressures on most other currencies. This, in turn, has
meant reduced reserve accumulation or even reserve drawdown in some
cases, as central banks try to defend their currencies.

Merrill Lynch notes that global central bank reserves at the end of
October 2008 were down around $70 billion from their peak in mid-
August. A number of central banks have effectively rushed to supply
US dollars back to the market.

Second, there has been a peaking and progressive unwinding of global
imbalances that started some time in late-2006. Two years down the
line, it is becoming increasingly apparent that the US current
account deficit is now narrowing, as are the concomitant current
account surpluses elsewhere, primarily in emerging markets.

These two trends imply less need for currency intervention and
reserve accumulation and thus a levelling off in central bank
reserves.

"Central bank reserves were accumulated for a rainy day," Merrill
Lynch says. "Well that day has now arrived and central banks are
likely to use these reserves as part of their arsenal in dealing
with the global financial and economic crisis. The longer the
downturn, the more likely reserves are drawn down."

Expectations of an easing in central bank reserves and the continued
transfer of funds to SWFs have a lot to do with Merrill Lynch's
projection of sharply more assets for SWFs.

Sovereign wealth funds attracted a lot of attention late last year
when they embarked on a series of major cross-border equity
investments.

SWFs have existed since the 1950s. Their asset size and clout in the
investment community have grown dramatically over the past 10 to 15
years, however. Among the more prominent investments made by SWFs
recently were those that involved the rescue of US banks that fell
victim to the subprime crisis. For example, Singapore 's Temasek
Holdings bought a $5 billion stake in Merrill Lynch (it has
committed a further $3.4 billion that is awaiting regulatory
approval), while Abu Dhabi bought a $7.5 billion stake in Citigroup.

Top 20 central bank reserves, according to Merrill Lynch:

China - $1.9 trillion
Japan - $976 billion
Russia - $569 billion
India - $296 billion
Taiwan - $282 billion
Korea - $258 billion
Europe - $226 billion
Brazil - $204 billion
Singapore - $175 billion
Hong Kong - $158 billion
Algeria - $137 billion
Malaysia - $125 billion
Thailand - $99 billion
Mexico - $97 billion
Libya - $74 billion
Poland - $82 billion
Turkey - $76 billion
US - $62 billion
Nigeria - $61 billion
UAE - $61 billion

Largest SWFs, according to Merrill Lynch:

UAE's Abu Dhabi Investment Authority - $675 billion
Saudi Arabia 's Saudi Arabia Monetary Agency - $375 billion
Norway 's Government Pension Fund - $300 billion
Singapore 's Government Investment Corporation - $250 billion
Kuwait 's Kuwait Investment Authority - $220 billion
China 's China Investment Corporation - $170 billion
Russia 's Reserve Fund $141 billion
Singapore 's Temasek - $90 billion
UAE's Investment Corporation of Dubai - $70 billion
Australia 's Australia Government Future Fund - $51 billion
Qatar 's Qatar Investment Authority - $50 billion
US`s Alaska Permanent Fund - $34 billion
Russia 's National Wealth Fund - $49 billion
Brunei 's Brunei Investment Authority - $30 billion
Kazakhstan 's National Fund - $27 billion

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