Today at the World Economic Forum on the Middle East, Monitor Group released Testing Time:  Sovereign Wealth Funds in the Middle East and North Africa and the Global Financial Crisis, an in-depth profile of 13 sovereign wealth funds based in the region during a period of extraordinary challenge.  The report documents a diversity of strategies and results. 

"The variation between the performances of Middle Eastern sovereign wealth funds is greater than expected," says Monitor Group CEO Mark B. Fuller, who is speaking on the topic at the WEF Middle East Summit at Dead Sea, Jordan.  "The relative youth of a majority of these funds means that the financial crisis has been their first taste of economic adversity, and some of the funds have sometimes not coped well.  On the other hand, the larger and more experienced funds have fared relatively well.  This suggests important differences in how the funds assess risk and uncertainty and indicates that the more mature funds have better risk management systems and organizational architecture better attuned to rapidly changing circumstances."

Key findings of the report are based on the Monitor-FEEM SWF Transaction Database, the most extensive database of publicly-reported SWF investment activity available, containing 1,158 deals completed by 17 funds in 11 countries between January 1, 1981 and December 31, 2008, and updated on a quarterly basis.   Among the findings: 

• Although the funds suffered losses on paper of between a fifth and a quarter of their value, as a group they performed better than funds based in the Asia-Pacific region as well as certain high-profile funds and endowments in North America and Europe.
• Their performance as a group disguises significant variation in individual fund performance.  Older funds with large, diversified portfolios fared better than those which had pursued aggressive investment strategies and participated in significant leveraged transactions.
• The funds maintained a strong pace of new investments during 2008, although this slowed dramatically during the first quarter of 2009.  Starting in the second half of 2008, most new investments were relatively small, domestic or in-region, and made less in expectation of near-term financial return than to help faltering enterprises or to develop and diversify local economies.
• The crisis exposed problems in how the funds manage risk and uncertainty, with younger funds particularly struggling in this area.
• Pressure to improve governance and accountability is rising, both from sovereign government owners and from outside constituencies.  Funds acting to become more transparent were viewed more favorably abroad and enjoyed better treatment in the media than funds that remain opaque.

Testing Time is the latest in a series of reports and quarterly updates documenting and assessing sovereign wealth fund activity that commenced last year with the report, Assessing the Risks:  The Behaviors of Sovereign Wealth Funds in the Global  Economy.