Sovereign wealth funds (SWFs) are growing rapidly in size, but knowledge about these funds is often limited, a report by State Street has found.
SWFs currently hold US$3 trillion in total assets and this figure is expected to grow to US$7 trillion by 2012. As they grow in size, so does their influence on financial markets.
"If SWFs... allocate some 60 per cent of their assets to equities, there is scope for the global equity risk premium to fall and for real bond yields to rise," the report found.
The demand for equity of these funds could also cause an increase in global equity prices.
The funds are in a position to influence key corporate decisions, such as on takeovers and the selection of management, through the stakes they hold in corporations.
Traditionally, SWFs have stayed out of the limelight and it has not always been clear how these funds are structured, or how they manage their assets.
Questions have also been raised whether governments should own large stakes in private companies in the first place.
But as the funds are sovereign it is difficult to force them to open up.
"The only way to advance the debate on transparency and involvement is by consensus and dialogue, not political posturing," the report said.
