Sovereign wealth funds have an estimated $1.3 trillion already in play with external managers, according to a Cerulli Associates report. That amounts to about 44% of the funds’ estimated $3 trillion in total assets, but the report says several managers believe that proportion will decline over time.
Both the $875 billion Abu Dhabi Investment Authority and the $213 billion Kuwait Investment Authority invest a majority of their assets with external managers, but they might now be in a position to slowly shift some of those assets to internal managers or domestic managers, the report said.
Typical management fees a sovereign wealth fund pays for a core equity portfolio range from 30 to 40 basis points, according to the report. Managers are often willing to offer a wider range of services to sovereign wealth funds, including extensive training for the fund’s internal managers on risk management and compliance, sharing of technological advancement and support for the domestic industry, according to the report.
The report said SWFs will make greater use of passive vehicles, such as ETFs. In addition, the extent to which SWFs continue taking direct equity stakes in specific companies such as Citicorp and UBS will limit the amount of assets they have available for external management, the report said.
