Sovereign funds cutting exposure to dollar

SYDNEY (Reuters) - Some of the world's largest sovereign wealth funds are seeking to scale back their exposure to the U.S. dollar in a sign of global concern about the currency, the Financial Times reported on Thursday.

The report said a large sovereign fund in the Gulf had cut its dollar-denominated holdings from more than 80 percent a year ago to less than 60 percent, but gave no source.

The FT also said China's State Administration of Foreign Exchange (SAFE) had been looking to strike deals with private equity firms in Europe as a part of a plan to reduce its U.S. dollar holdings, citing people familiar with the matter.

The shift at China's SAFE, controlled by the central bank, was significant because it manages the bulk of the country's fast-growing foreign currency reserves.

The FT report said SAFE had been holding talks with Europe-based private equity firms about putting billions of dollars into their latest funds, precisely because these funds are not dollar-denominated.

By allocating money to Europe-based private equity firms, SAFE could diversify away from the dollar, at least at the margin, without unnerving the currency markets and driving the dollar down in a disorderly manner, said the FT.

In addition, SAFE is encouraging the private equity firms with which it has relationships to make investments in natural resources companies in markets outside the United States, in part to hedge its exposure to the dollar, said the report.

A SAFE official declined to comment when contacted by Reuters.

Last year, China launched a $200 billion sovereign wealth fund, China Investment Corp (CIC), to earn greater returns on part of its foreign exchange reserves, which swelled by $126.7 billion (63 billion pounds) in the second quarter to a record $1.81 trillion.