Western governments that court investments from oil-rich states such as Qatar and Saudi Arabia may find it harder to attract assets in the coming months, as research suggests these nations are keeping more of their wealth at home.
The change is partly caused by governments in the Gulf Cooperation Council (GCC) spending more of their wealth on infrastructure, healthcare and education, which leaves a smaller proportion available for sovereign wealth funds to allocate to investment opportunities abroad.
The available surplus, or investable assets, of governments in the GCC is forecast to decline 9% this year, according to International Monetary Fund estimates from September 2011, and this will be accompanied by a squeeze on sovereign wealth fund assets. Invesco, the fund management company that carried out the research, estimated that although GCC government revenue in the region will rise 31% this year, funding rates of sovereign wealth funds in the region will rise only 8%.
At the same time, sovereign wealth funds seem to be directing more of their investments to their home markets. Invesco's survey suggests that assets related to the GCC now account for 56% of sovereign wealth funds' investable assets, up from 33% in last year's survey. Invesco also estimated that local bonds now account for 14% of sovereign wealth funds' available assets, up from 6% last year.
These estimates are based on interviews with institutional investors and experts with a knowledge of sovereign wealth funds.
“Western governments, including the UK, have approached sovereign wealth funds from the Middle East to help with economic recovery, but many will fight a losing battle,” said Nick Tolchard, head of Invesco Middle East. “There is certainly less money to invest internationally so the stakes are higher.”
Key GCC projects requiring funding include a railway network in Qatar, the proposed development of Abu Dhabi as a financial centre, and spending on health and education in Saudi Arabia and Oman
“The story this year is that it is no longer a given that large sovereign governments are going to direct their oil revenue surpluses around the globe, pumping cash into other global economies,” said Tolchard.
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