SWFs continue investment into hedge funds

Over a third (37%) of the world’s sovereign wealth funds (SWFs) invest in hedge funds.

This number is one percentage point down from 2009. Hedge funds overall still account for a relatively small part of SWF investments, according to research by Preqin.

Total assets under management (AUM) by SWFs increased by 9% between 2009 and 2010 to an estimated $3.51 trillion.

SWFs in the Middle East and North Africa (MENA) region account for 38% of those investing in hedge funds. Just under a third (29%) of global SWFs allocating to hedge funds come from Asia.

Preqin said the proportion of Asian-based SWFs investing in hedge funds has grown over the past year, although only a third of Asian SWFs currently have hedge fund investments.

North American SWFs are most likely to have hedge fund investments, with 80% of the sector allocating to hedge funds. In contrast no African (excluding MENA), Latin American or Caribbean SWFs have exposure to hedge funds.

SWFs also expressed a preference for funds managed from North America. Over three-quarters (76%) of SWFs were interested in funds formed in this region. An even larger number (85%) said funds with a global mandate were preferred.

There was no clear strategic preference among SWFs. A majority (83%) said they would consider any type of vehicle and 50% said they liked funds of hedge funds.

Asia and the MENA regions were home to the largest number of SWFs, accounting for 57% of all global funds, according to the research. These regions also account for the largest amount of SWF assets, three-quarters of global AUM ($2.63 trillion).

Europe is the next most significant region for SWFs, accounting for 10% of the sector by number of funds and 19% of AUM.

The majority of SWFs' capital comes from the export of resources such as oil and gas, accounting for 59% of aggregate AUM.

The world's three largest SWFs were likely to be the Abu Dhabi Investment Authority, the Norwegian Government Pension Fund and China's SAFE Investment Company, said Preqin. Together these were estimated to manage over $1 trillion.