Filings by Saudi Arabia’s Public Investment Fund (PIF) and Singapore’s state-owned holding company Temasek show they were hit by the shock to markets in the first quarter as the Russian intervention in Ukraine sent the global economy reeling.

Price inflation, interest rate hikes and shortages of basic staples have knocked the post-pandemic recovery and dented the performance of stock markets. After robust equity returns during 2021, Wall Street saw the S&P 500 decline 4.9% - although energy stocks stood out for stellar performance on the back of surging oil prices.

Temasek witnessed its US public equities holdings plummet 14% to US$23.7 billion in Q1 2022, according to its 13F filing released on Monday. The disappointing start to the year marks the third successive quarterly decline in the portfolio’s value since end-Q2 2021 when it peaked at US$34.3 billion. The US$4 billion drop in the total value reflected the decline in stock values rather than divestments and the portfolio’s value is now around the same size as it was at end-2020. It did, however, invest in new stocks: S&P Global (US$851 million), SES AI (US$285 million) and TPG (US$128 million).

Sectoral allocations have now changed with financial service sector stocks remaining at 47% of the overall portfolio, followed by TMT (29%), healthcare (14%) and retail & consumer (8%). This has been a holding pattern the Singaporean investor has maintained since Q2 2020 when it divested stakes in tech companies in favour of finance stocks. The tactic has not delivered returns and performance is sub-optimal, which could prompt Temasek to switch tactics in the months ahead as it responds to a volatile economic climate.

PIF’s US public equity portfolio plunged 22% to US$43.6 billion in Q1 2022 due almost entirely to the slump in the stock price of Lucid Motors, which wiped US$12.2 billion off the sovereign fund’s overall holdings. In the final quarter of Q421, the electric vehicle manufacturer saw its stock price surge 55%, accounting for much of the US$13 billion increase in PIF’s US equities portfolio to US$55.9 billion. With the fund’s AUM estimated at US$460 billion at end-2021, US public markets represented 12% of its portfolio.

PIF began its involvement in Lucid in 2018 when it invested US$1 billion in the Tesla rival. In February 2021, PIF, BlackRock and others invested another $2.5 billion in Lucid as part of its merger with special purpose acquisition company Churchill Capital Corporation IV. Lucid is widely believed to be falling behind its production targets and its stock continued to shed value going into Q2; in the year-to-date, the EV-maker has lost around half its value. By 2026, it had hoped to deliver over a quarter of a million vehicles with annual revenue at US$22.7 billion – a rate of growth that is far larger than the expected CAGR of the overall EV market and looks increasingly unrealistic given the intense competition from other producers and its slow rate of production growth.

If the Lucid stake is excluded from the total, a different trend emerges with the portfolio adding considerable alpha with a 4% gain to US$17.8 billion – an increase of nearly US$700 million.

The growth was led by improved stock prices and increased investment by PIF in gaming companies, a strategy it has pursued since mid-2020 at the height of the Covid-19 pandemic. It doubled its position in gaming company Take-Two Interactive – the owner of leading franchises such as Grand Theft Auto and NBA 2K – with its holding growing by US$753 million to nearly US$1.8 billion. At the same time, it saw the value of its shareholding in Activision Blizzard – which holds franchises such as Call of Duty and Overwatch – grow 20% to more than US$3 billion as Microsoft launched a US$69 billion take-over bid.

Altogether, PIF declared US$8.1 billion of investments in gaming company stocks at end-Q1, up US$1.2 billion on the previous quarter. In terms of portfolio share, gaming represents 18.5% of PIF’s total US public equity portfolio, up from 12.4% at end-2021.

PIF started building stakes in listed gaming companies in Q4 2020, amid the pandemic, in response to a surge in consumer demand for gaming, eSports, home entertainment and streaming services as swathes of the global population experienced waves of lockdown. The move to boost investments in the sector is part of its 2021-2025 strategy to invest in innovation in strategic sectors including entertainment, leisure and sports.

In February, Global SWF reported that PIF had added Tokyo-listed Capcom and Nexon to its portfolio of chunky stakes in gaming stocks, making the sector one of its biggest targets in its public equity strategy and adding to its rapidly growing exposure to the gaming and eSports market.

The fund says it intends to create “opportunities for the growth and diversification of Saudi Arabia’s economy, to help achieve the objectives of the kingdom’s Vision 2030.” According to Boston Consulting Group, Saudi Arabia’s gaming market is forecast to reach US$6.8bn by 2030, with a compound annual growth rate of 22%. PIF’s gaming interests extend beyond public stockholdings. In January, the sovereign wealth fund launched a new gaming company, called Savvy Gaming Group, to strengthen its position in the gaming industry.

Related funds PIF Temasek
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