Recently, Reuters reported that the assets under management of Kuwait’s sovereign wealth fund fell to 49 billion Kuwait Dinar ($177.6 billion) at the end of December from 58 billion Kuwait Dinar ($218 billion) in March 2008. – a face value decline of about $31 billion. Given that Kuwait had record oil revenues in 2008 (and a record fiscal surplus even if revenues tailed off in the second half) and KIA likely received record new capital, this implies that investment losses were even larger. It is significant for two reasons. One it shows that the estimates of fund performance (including those released in a recent paper by Brad Setser and myself) are on track and two, it could suggest that within limits there may be increasing amounts of transparency among sovereign investors. It also will provide an interesting test case of how the population and opposition react to the losses on the national wealth.
Unlike funds of its neighbors, Kuwait’s fund has to routinely report to its parliament and at such times information on its assets usually is released to the press. Doing so increases the robustness of estimates of their performance and may also open up channels to domestic pressure concerning how the national wealth is being managed. Domestic politics has influenced decisions in the past - Kuwait Petroleum’s deal with Dow Chemical was reportedly withdrawn under political pressure. So it will be a case to watch, as will the funds of Singapore which have also noted investment losses in response to legislative questioning.
The numbers seem to refer to Kuwait’s future generations fund, the larger of the two pools of money managed by KIA. The other, the General Reserve Fund, is smaller, perhaps around $40 billion. It is on the one hand more liquid as its name suggests but also holds the countries holdings in domestic equity and property markets. KIA itself though was also authorized to invest in the domestic equity market to prop up prices.
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