Many SWF balance sheets suffered during the financial crisis due to ill-timed investments into Western financial institutions, which lost about $80bn. SWFs are now moving away from foreign investment to long-term infrastructure and resource development projects. For example, Abu Dhabi Investment Authority is looking at a joint bid with Morgan Stanley and private equity group 3i for the high-speed railway linking London with the Channel Tunnel.
According to estimates by Prequin, SWFs have regained some of their strength and currently hold $3590bn in assets, an increase of 11% from last year. But many are tapping the capital markets for more funding as governments seek to make quicker, riskier, short-term gains. Abu Dhabi, Bahrain, Kazakhstan, Qatar and Singapore are all looking to raise funds. Samruk-Kazyna, Kazakh government's $70bn wealth fund, is planning to raise $6bn in bank loans as well as obtain a credit rating so as to eventually launch an initial public offering.
While private sector investment brings further validity to SWFs - often criticised for their secrecy - if SWFs start to invest in riskier assets with bigger short-term returns then some analysts fear government-owned funds may begin to resemble unregulated hedge funds. They also worry that short-term views and outside investment may also undermine the main purpose of SWFs - to maximise wealth for future generations.
