…of their sponsors.
Gleb Bryanski and Yelena Fabrichnaya report that Russia will be tapping its Reserve Fund to fill a budget gap of roughly $75 billion, which represents a draw down of 55% of the SWF’s assets. One more year of budget shortfalls and the Reserve Fund could simply disappear.
In most cases, SWFs were set up with a view towards providing governments with much needed capital during a crisis. Whether it is providing capital to fill a yawning unfunded pension liability or offering a stabilizing influence in economies that are overly reliant on volatile commodity prices, all are in some way ‘insurers of last resort’. This has become all too clear during the current economic crisis. As I said the other day, SWF assets will be used by sponsors around the world for the next few years, bringing the assets under management well below current levels.
However, if these funds succeed in staving off economic meltdown, expect resurgence for SWFs coming out of the crisis…much the way forex reserves grew coming out of the ’97 financial crisis.
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