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Sovereign Wealth Funds Grow by 19%, State Street Says

Sovereign wealth funds in Asia-Pacific, Europe, Middle East and Africa increased assets by 19 percent over nine months, according to a survey of 12 clients by State Street Corp., the world’s third-largest custody bank.

Total assets of the funds rose to $136 billion by September, from $114.5 billion at the end of 2008, said State Street Global Advisors, the bank’s investment management unit. State Street declined to identify the funds in the survey, citing client confidentiality.

Sovereign wealth funds have benefited from a stock market rebound and new capital inflows, the survey said, as the MSCI World Index gained 27 percent last year, the strongest annual surge since 2003. Thirty-nine percent of the funds’ assets, or $53.1 billion, were invested in equities by September, the survey said, as the amount of stock investments jumped 64 percent from December 2008, reflecting both valuation gains of shares already held and decisions to boost stock investments.

“There’s an increase in risk appetite,” said Hon Cheung, Singapore-based regional director of State Street Global Advisors’ Asia official institutions group, in an interview in Hong Kong today. “There’s been a shift out of cash and into higher-risk assets.”

Funds seeking to increase their higher-risk, higher-return investments after the financial crisis initially raised allocations to passive or enhanced products which set targets based on benchmarks, Cheung said. They may channel more capital to active investment strategies as early as this year, he added.

Faster Growth

The six funds in Asia-Pacific expanded assets by 41 percent to $14.9 billion in the nine months. Their six peers in Europe, Middle East and Africa increased assets 17 percent to $121.1 billion, the survey found.

The faster growth of the Asian funds partly reflects their stronger performances as they held higher amounts of cash going into 2009 and invested a larger percentage of assets in stocks as the market surged, the survey said.

State Street estimated $2.3 trillion of Asia’s $5.1 trillion foreign-exchange reserves are surplus to central bank needs, Cheung said. Those excess reserves are currently managed too conservatively and can be redeployed to sovereign wealth funds to generate higher returns, he said.

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