India Economy

First World Wealth drives Fund flows

Arvind Jayaram | Updated on December 08, 2012 Published on December 01, 2012


The total assets under management by global funds rose by a modest 1.2 per cent to $120 trillion in 2011 despite falling equity markets and euro zone debt worries. Of this, conventional assets under management in the form of mutual funds, insurance and pension funds grew by 1.4 per cent to a record $79.8 trillion.

A study by financial and professional services promotion body TheCityUK estimated that the size of conventional funds will rise by another 5 per cent in the first three quarters of 2012 to $84.1 trillion and to $85.2 trillion by the end of the year. The US is the largest source of managed funds worldwide, accounting for nearly half of the conventional assets under management, followed by the UK and Japan.

Pension funds, insurance

Pension assets account for nearly 40 per cent of the total conventional assets under management, with the rest split almost equally between mutual funds and insurance. Pension assets totalled $31.5 trillion at the end of 2011, with the US accounting for 60 per cent of the global total. The UK had a 10 per cent share of the pension funds, followed by Japan and the Netherlands with 5 per cent each. The size of the combined corpus of Indian public and private pension funds is approximately $75 billion.

With respect to insurance, approximately four-fifths was from long-term insurance policies and the balance from general policies, such as health and property and casualty insurance. Life companies’ funds grew faster than that of non-life firms.

Fund management

Mutual fund assets fell by 4 per cent in 2011 to $23.8 trillion, following a strong start to the year, primarily on account of troubled equity markets. But in the first half of 2012, the corpus managed by mutual funds rose to $24.7 trillion. Most mutual funds are managed in only a few companies.

Indian mutual funds had total assets under management of $138.4 billion as of September 2012, a tiny fraction of the global industry. Alternative funds such as hedge funds, private equity, exchange-traded funds and sovereign wealth funds accounted for over $10 trillion of the total global funds under management at end-2011. While hedge funds witnessed a 3 per cent reduction in corpus vis-à-vis the previous year, this comes in the wake of 25 per cent growth in assets during the previous two years.

What is more, they have risen nearly two-and-a-half times during the past decade. As per the report, there are over 9,800 hedge funds worldwide, with new launches outpacing fund liquidations.

As per estimates, private equity investments worth $246 billion were executed in 2011, down 6 per cent in comparison to the previous year and just equivalent to a third of deal activity at their peak in 2006 and 2007.

Private equity funds available for investment totalled $949 billion at the end of the first quarter of 2012, down 6 per cent year-on-year, as per TheCityUK. Including unrealised funds in existing investments, private equity funds under management totalled over $2 trillion. India garnered private equity totalling $22.2 billion during the three-and-half years to June 2012.

Commodity investments

An analysis of the sources of sovereign wealth funds shows that the contribution of commodities has been coming down over the years.

While commodity exports like oil accounted for 77 per cent of SWF investments in 2002, and non-commodities just 23 per cent, by 2012, commodity-based investments fell to 56 per cent, while government budget surpluses, pension reserves and privatisation revenue made up 44 per cent of the SWF corpus.

The global exchange-traded fund industry had 3,011 ETFs listed on more than 40 exchanges worldwide at the end of 2011.

The size of the global ETF market is $1.4 trillion, as per TheCityUK report. Equity exposure accounts for around 70 per cent of global ETF assets, while fixed income ETFs constitute 17 per cent. The rest was invested in commodities. In India, the cumulative investment made in ETFs totalled around $2.1 billion in June 2012.

What are the different Funds

Hedge Funds: These funds aim to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.

Exchange-Traded Funds: These are investment funds traded on stock exchanges, holding assets such as stocks, commodities, or bonds. Most ETFs track an index, such as a stock index or bond index.

Private Equity Funds: Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.

Sovereign Wealth Funds: A state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments.


Published on December 01, 2012
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