Value of assets held by the world's sovereign wealth funds fell to $3 trillion this year from $3.6 trillion at end-2007 as the credit crisis nearly halved their equity portfolio, according to Deutsche Bank.

The German bank's report on state-owned investment funds also highlighted their positive long-term prospects, with their total assets under management likely to more than double to $7 trillion in the next 10 years.

Sovereign wealth funds (SWFs), which have replaced hedge funds and private equity as major movers of corporate mergers and acquisitions, have taken a dent in their wealth after pouring $80 billion into major banks just before the credit crisis escalated into major market turmoil.

Deutsche estimates that typical equity portfolios held by SWFs may have lost 45 percent between end-2007 and early 2009, reducing overall SWF portfolios by around 18 percent. However, Deutsche said losses have not been realised so far because SWFs have largely held onto their investments.

Deutsche said the data provided in the report is valid as of June 5.

While holding assets which are three times more than hedge funds, the size of SWFs is still limited in the global context, the report said.

Their assets make up less than half of global foreign exchange reserves, less than a sixth of global pension assets and less than a tenth of global stock market capitalisation. Their assets make up three percent of bank assets worldwide.

Following their ill-timed moves into Western financial firms, Deutsche estimates that their investments are well over 50 percent down from 2008 levels.

Completed investment transactions by SWFs totalled just $10 billion so far in 2009. This compares with $58 billion in 2008 and $44 billion the year before. Between 1995 and 2009, publicly reported investment transactions by SWFs in publicly listed companies amounted to $185 billion.

Asia and Europe remain the preferred targets for SWF investments, with 31 percent heading to Asia, 30 percent to European Union economies and 20 percent to the United States.

Within the EU, Britain tops the league of recipient economies, largely reflecting strong inflows into the UK financial sector.

SWFs are also selling their assets, with completed divestment transactions totalling $11 billion this year. This compares with $19 billion in 2008 and just $6 billion in 2007. - Reuters