As the influence of sovereign wealth funds (SWFs) grows, the consequences of their rise are just beginning to be studied. A number of studies have found that, save for a predisposition to invest in their home countries, SWFs show no major signs of non-profit driven motives.
A number of exceptionally high profile purchases by newly empowered OPEC state SWFs, however, have raised concerns that while that may be true on a general level, certain SWFs may pose real geostrategic threats to national financial interests.
The jury is still out on that question, though, and in lieu of real evidence pointing in that direction, most researchers studying the issue have moved on the effects of the rise of SWFs on specific markets. So, we come to the question of what the role of newly capital-rich SWFs will have in the real estate market.
The most recent major change has come from the Norwegian government’s major SWF, which is responsible for investing the state’s hefty pension funds in global markets. It has already made waves with its politically conscious, progressive investment decisions that have garnered criticisms by conservatives in Washington.
Now, the fund is moving into real estate, has decided to allocate 5% of its assets in the global real estate market. That’s roughly $20 billion.
Chinese and Korean SWFs are considering similar moves.
High oil prices are a major reason for the growth in SWF assets in general, with the OPEC states each operating huge SWFs.
While SWFs are currently valued at just shy of $4 trillion, the World Bank thinks that figure may grow to over $12 trillion by 2015.
This would mean that, despite the long-term global credit crunch, the international real estate market can look forward to a major infusion of capital from non-traditional sources as these huge funds seek to diversify their assets away from the more actively managed assets they are known for and into more long-term high return markets such as real estate.
New York City being perhaps the single most famous real estate market globally, it’s like that a large number of high profile purchases and more general infusions of capital into the market will occur in the coming decade.
When the dollar hits its low, look for sovereign wealth funds to be the first to swoop into the US real estate market with a frequency that might even alarm some analysts. New York City will certainly be top on their list, and the role of SWFs will surely quicken the velocity of any recovery the market ends up needing.
The lesson is clear for those in the New York City real estate market: When the dollar looks like it may start to strengthen, don’t let large foreign investors, and particularly SWFs, beat you to the punch – buy quickly and aggressively.