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MONEY MANAGEMENT
Potential treasure trove of business awaits, but getting to it won't be a walk in the park
Simple mathematics has put sovereign wealth funds at the top of large money management firms' VIP lists. Getting those funds to cross the velvet rope is another issue.
Funds vary widely in both their asset allocations and willingness to hire external money managers. But winning mandates from most sovereign wealth funds requires more work than with other institutional clients, managers and consultants said.
Total assets for sovereign wealth funds already total $3 trillion, half again as big as the nearly $2 trillion hedge fund industry, according to the Council of Foreign Relations' website. The International Monetary Fund estimates sovereign wealth assets could reach $10 trillion in the next five years.
Total global pension assets for the 11 largest pension markets totaled $23.2 billion at the end of 2006, according to Watson Wyatt Worldwide in Arlington, Va.
"Consider that this $10 trillion is in 100 accounts as opposed to tens of thousands of pension accounts, and you can see why they're important to the money management industry," said a top executive at a money management firm, who works with sovereign wealth funds. He declined to be named.
The funds' assets have grown as a commodities boom fueled growth in many emerging economies. Global trade account imbalances between the developed and emerging countries have also built up the reserves, which typically are held at central banks.
New sovereign wealth funds are springing up and growing quickly. According to the Center for Emerging Market Enterprises at Fletcher School of Business, Tufts University, Medford, Mass., 12 sovereign wealth funds have started since 2005.
New funds are expected to launch in countries such as Brazil and Japan, and some countries with one sovereign wealth fund are setting up a...