Morgan Stanley’s global head of currency research Stephen Jen is scaling back his view on the might of the sovereign wealth funds.
The team’s original prediction for assets under management by 2015 was $12 trillion. But, with a number of ill-timed investments, lower oil prices and what looks likely to be a falling US deficit, times aren’t necessarily going to be as good for the SWFs as first thought. Jen thinks the figure is now more likely to come in around the $10 trillion mark.
As well as all that, he says, there’s the risk the funds will need to replenish official reserves and/or be called upon to finance extraordinary fiscal operations.
Here are some extracts from the report:
Paper losses. Our guess is that some SWFs may have seen between 18% and 25% of paper losses so far this year, implying that total AUM by SWFs may have declined from US$3.0 trillion to US$2.5 trillion or even US$2.3 trillion. We stress that this is a guess, not based on actual data.
Slower incremental growth of SWFs. Lower oil prices, more modest export growth, the need to replenish official reserves and higher risks of being called upon to finance fiscal operations may lead to a more tempered growth trajectory for SWFs.
Revised SWF projections. Updating our calculations, we now see the AUM of SWFs reaching US$10 trillion by 2015, compared to the previous projection of US$12 trillion. The expected cross-over between official reserves and SWFs is now 2014, compared to 2011.
New questions have arisen. However, we are now taking seriously the possibility that some SWFs may be forced to sharply slow down their pace of purchases of risky assets or, in extreme cases, liquidate parts of their portfolios in the coming year or so.
