Sovereign Wealth Funds Could be Growing Even Faster in 2012

Commodity-based sovereign wealth funds could see assets under management grow at a faster pace compared to 2011. In 2011, sovereign wealth assets grew by an estimated US$ 422 billion. The year before, sovereign assets grew by US$ 384 billion. The mechanized funding amounts of commodity-based wealth funds are vulnerable to the volatility in oil, mineral, and natural gas prices. Oil prices are on the rise and equity markets have been faring better in recent weeks. The Dow hit 13,000 briefly. With a combination of positive investment returns and increased commodity prices, there is a high probability SWF assets could pass US$ 5 trillion in assets. If investment returns sour in 2012, commodity-based SWFs will make up a bigger portion of the total sovereign wealth fund asset pool. In addition to commodity price increases and positive asset returns, more and more countries are creating commodity-based sovereign funds.

Interval Year Sovereign Wealth Asset Growth (Billions USD)
2009 -118
2010 384
2011 424

Around a quarter of the world’s oil supply comes from the Gulf region.

Around the world, end users of oil face supply risk from a myriad of sources. The Strait of Hormuz is a critical juncture in which a significant percentage of the world’s seaborne traded oil traverses through. Luckily, for oil-based sovereign funds, oil prices have a firm floor to stand on. Increased demand from China and Occidental nations continue to hold oil prices at a firm level. In contrast with a firm floor, oil prices have a soft ceiling due to the nature of geopolitics and foreign affairs. In fact, China and India are already stockpiling and seek to build their own strategic reserves akin to what the United States has.



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