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Sovereign wealth funds eye London property

Tuesday, 6 May 2008 6:36 AM

The growing influence of sovereign wealth funds (SWF) is expected to spread to the London property market in the coming months.

SWFs - an investment fund owned by a government or state - have grown in stature and importance during the current credit crunch, as traditional sources of liquidity have dried-up.

Analysis from Global Insight estimates SWFs have grown by an average of 24 per cent per year for the past three years. Consequently they now have about £1.76 trillion in assets - more than private equity and hedge funds combined.

At present rates the value of sovereign wealth funds will exceed the value of the GDP of the US economy by 2015.

This wealth could now be headed for London.

"We think there will be more of that activity in central London in terms of purchasing buildings over the next one or two years, just because investors are usually in for the long haul and are willing to ride out any storms in the economy," said Deborah Hayward, senior associate at property services specialist King Sturge.

"They are obviously absolutely loaded with money and it is oil money so it's secure money and they're not too worried about losses. They'll also take risks in so far as they might do developments as well."

This could see prime assets in central London move into disparate international hands.

"The SWFs do tend to be mainly Middle Eastern. One of the largest ones is actually the Norwegian SWF and that's from north of the oil fields. Abu Dhabi has several and Singapore has two," continued Ms Hayward.

"China and Saudi Arabia have some and so do a whole host of others."

A sovereign wealth fund allows a nation to: protect and stabilize the budget and economy; diversify risk; earn greater returns; dissipate unwanted liquidity; increase savings for future generations; and fund social and economical development.

Chris O'Toole

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