Skip to content

Sovereign wealth funds poised to snap up global real estate

SWFs, the billion dollar state-backed investment vehicles which have bought major stakes in everything from investment banks to UK commercial property in the past few years, will increase their exposure to real estate from 4 to 7% over the next seven years, CBRE said.

This means that they will have bought between 15 and 20% of total international property by 2015 while increasing competition for trophy assets in the US and UK where property prices are low.

The International Monetary Fund predicts that SWFs control between $2 to $3 trillion worth of assets worldwide. This is expected to grow to $12 trillion by 2012.

'There is definitely money waiting to be invested. A lot has been on hold this year,' said Guy Henriques, head of official institutions at the fund manager Schroders.

The rise in SWFs in the past couple of years from China and the oil-rich Middle East marks a shift in the balance of power in the world economy away from western countries to emerging markets.

Over the past two years SWFs have poured billions of dollars of much needed capital into big American investment banks reeling from writedowns due to the credit crisis.

China's $200 billion sovereign wealth fund, China Investment Corporation, bought a 9.9% stake in Morgan Stanley last year for $5 billion.

SWFs have also favoured commercial real estate in London, attracted by solid long-term returns.

In May this year St Martins Property Group, the real estate arm of the Kuwait Investment Authority, paid $642 million for the Willis Building, a landmark 491,000 square foot City of London office tower.

French President Nicolas Sarkozy is a believer in SWFs and has been urging European nations to create their own funds to protect both national and European interests, and of course, to avoid being left behind by the likes of China and Middle Eastern funds.