SWFs eye BRICs but rules, liquidity restrain
ST PETERSBURG, Russia |
ST PETERSBURG, Russia (Reuters) - Euro zone woes have prodded Sovereign Wealth Funds' towards more investments in emerging markets, but a lack of liquidity and rules on risk limit how much they can invest, financiers told a forum on Saturday.
The BRIC grouping of major emerging powers -- Brazil, Russia, India and China -- offered especially attractive prospects, according to a panel of SWF managers, bankers and economists discussing the issue.
"If people are not allocating more money to things that relate to China, then they are going to have a tough life," Goldman Sachs' global economic research head Jim O'Neill said.
Goldman Sachs expects Chinese GDP to grow by $7 trillion (4.7 trillion pounds) in the next decade, the equivalent of "two more Chinas."
Norway's oil fund has already moved in that direction, and is a major holder of Hong Kong-listed mainland Chinese companies. But restrictions mean this represents an insignificant part of the nearly $500 billion fund.
"I think we are one of the biggest investors there...with $500 million, that's just 0.1 percent of our assets. We are not allowed to invest any more," Yngve Slyngstad, the investment chief for Norway's oil fund said.
Sovereign wealth funds' limits on investment in the BRIC countries could ease in the future, other panelists said, particularly because they offer attractive fundamentals, such as lower debt to GDP ratios and stronger economic growth.
Sovereign wealth funds control almost $4 trillion in global assets, roughly twice the volume of the hedge fund industry, though they are still just one-sixth the size of all pension funds, Citigroup Chief Risk Officer Brian Leach said.
"What they are looking for is deep markets, good governance and solid growth prospects," he said.
While the BRICs offer an emerging consumer class and low public private debt levels, most listed companies are too illiquid for the sovereign funds and red flags such as large bureaucracies hinder investment.
When possible though, investment in emerging market shares can pay off, said Andrei Kostin, the head of Russia's state-owned VTB (VTBR.MM).
"At the end of 2008, the Russian National Welfare Fund invested $3 billion in Russian shares...(and) earned a lot of money because of the growth of asset prices in just one year," he said.
Russia's benchmark RTS index .IRTS is up 124 percent since December, 2008.
(Editing by Patrick Graham)
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