2021 Annual Report State-Owned Investors in a post-pandemic age

2021 Annual Report
State-Owned Investors in a post-pandemic age
Executive Summary

The year 2020 will always be remembered for the COVID-19 outbreak and for resulting market uncertainty – as well as the largest disconnect between economic reality and financial markets in history.  While the world lost millions of jobs with an estimated -4.4% wiped off GDP (IMF), the markets closed with a +10.2% gain in bonds (measured by S&P 500 Bond) and an +13.1% gain in stocks (measured by S&P Global 1200). And given that State-Owned Investors continue to hold on average three quarters of their portfolios in liquid assets, this has translated into a net growth of the industry size. In other words, Sovereign Wealth Funds (SWFs) and Public Pension Funds (PPFs) ended 2020 with an all-time high AuM of US$ 9.1 trillion and US$ 18.4 trillion, respectively, i.e., a 21% (SWFs) and a 34% (PPFs) growth in the past six years, since the 2015 oil crisis.

It was also the year in which the evolution and complexity of the industry has become most evident. On the one hand, SWFs have a variety of objectives, which determine their liquidity and hierarchy in terms of responding to government fiscal deficits (see page 34). In fact, the year saw several withdrawals from 26 funds across six continents, for a combined US$ 162 billion. On the other hand, there is a rising trend among countries to include a development function and domestic investments as part of their mandate. The two funds established in 2020 (Fonds Souverain de Djibouti, FSD and Indonesia’s Nusantara Investment Authority, NIA) have been seeded by their governments and are expected to catalyze foreign capital into their respective economies. Other funds opted to issue new bonds that would alleviate their countries’ debt levels (see page 35).

The capital invested by SOIs contracted significantly during 2020. During the peak of the pandemic, deals were negligible due to logistical problems – investment executives were not able to get their committees to sign off on their proposed acquisitions without a physical meeting. Later in the year, it was more a matter of caution, especially among those SWFs that could still face capital calls to cover fiscal deficits. Overall, and compared to 2019 volumes, investments by SWFs dropped by 33%, to US$ 83.7 billion in 280 transactions; while capital deployed by PPFs slightly increased in both value and volume, up to US$ 78.6 billion in 223 deals. 

But as we learned in 2008, the motto of SWFs could be “never waste a good crisis”. If during the global financial crisis, it was the savings funds (such as ADIA, CIC, GIC or QIA) who acted swiftly and bought multi-billion stakes in distressed financial institutions, during the COVID-19 crisis it has been the development funds (such as Mubadala, PIF or Temasek) who have been able to react more quickly and acquire strategic assets. Among PPFs, the Canadian Funds continue to stand out, with CPP and CDPQ among the Top 10 spenders.

There was a lot of tilting, recalibration and thinking behind strategic asset allocation. While 2018 was a bad year and 2019 was a good year across all asset classes, 2020 favored those investors that maintained higher levels of liquidity in their balance sheets. However, not all the funds value their private holdings in the same manner and timing, and some of them may have been able to wait for calmer waters until they recognize – or do not ever have to recognize – some of the underlying losses in those non-listed portfolios.

Certain asset classes were especially sensitive to the recession and deals in real assets, including properties and infrastructure, saw the biggest declines. Among SWFs, the number of deals in this space represented only 29% of the total, as compared to 38% in 2019. Furthermore, we saw a change in pattern, with SOIs being less attracted to fancy hotel brands and to core real estate in major cities, and devoted more to logistics, data centers, warehouses, senior facilities and student housing. See page 13 for a detailed analysis.

Lastly, the industries that gained more attention and capital were those touched by the magic wand of technology. Energy and Natural Resources, Financial Services and Retail and Consumer saw fewer acquisitions, while Industrial Products, Healthcare, and Telecommunications and Media were significantly up. Within Technology, we saw a pivoting from fintech and e-commerce, into IT and, not surprisingly, biotech. We analyze this trend in detail on page 28. These changes in asset classes and industries meant that SOIs scaled up their holdings in developed markets despite the interest in China and especially India (pages 24-27). North America attracted 37% of the capital (vs 27% in 2019), while Emerging Markets only received 29% (vs 40% in 2019).

Comparisons between the Global Financial Crisis (GFC) and the COVID-19 pandemic show the changes that the industry has gone through in the past 12 years. As highlighted in Section 4, between 2008 to 2020, SOIs’ assets doubled from US$ 13.8 trillion to US$ 27.5 trillion and the average allocation to alternatives changed from 12% to 24% – representing a quadrupling of SOI capital held in real estate, infrastructure, private equity and hedge funds between 2008 and 2020. Furthermore, SOIs can no longer be referred to as “dumb money” and are now seasoned investors that rigorously examine strategy, allocation and risk.

In no fund is that evolution more evident than in Saudi Arabia’s Public Investment Fund. In 2008, the fund was mostly a domestic holding company that supported Tadawul-listed equities and provided financing to projects where the private sector could not. Today, the Saudi fund is one of the world’s most outstanding SWFs that has pursued uniquely bold investments, including US$ 45 billion in Softbank Vision Fund I and US$ 20 billion in Blackstone Infrastructure Fund. With its rapid transformation and its rise in the ranking of both the largest and the most active SOIs, we recognize PIF as the 2020 Fund of the Year. In Section 5, we offer the award and have a perceptive conversation with Yazeed Al-Humied, PIF’s Head of Local Holdings Investments.

The SOI sector continues to be a big, global, strategic board game where geopolitics still play a big part. In the past four years, the US Government has been more welcoming towards Middle Eastern capital and more aggressive at rejecting Chinese funds, via CFIUS. The attitude of the new administration towards such FDI is still uncertain, and together with Brexit, may determine what the industry looks like in the next few years. In Section 7, we look at the rise of China and India as countries of interest among SOIs. The US$ 11 billion received by Reliance Group companies in 2020 alone is certainly a good testament to the shifting dynamic in Asia.

Analysts agree that the halt in economic growth caused by COVID-19 has been generally good for the environment, and that it has represented a wakeup call in terms of sustainability for companies and investors alike. The One Planet SWF Group, set up in 2018 by six SWFs, attracted nine more SWFs in addition to a total of 19 asset managers and private investment firms at the end of November this year. In fact, of the 3,575 signatory members of UNPRI today, over a quarter signed up in 2020. But is membership of such organizations sufficient or is it just another form of greenwashing? We assess the Governance, Sustainability and Resilience actual efforts of SWFs and PPFs in Section 9, thanks to Global SWF’s proprietary GSR Scoreboard.

State-Owned Investors are not only larger and less risk-averse – they are also increasingly sophisticated and complex organizations. And this gets reflected in (i) their mission and mandate, which can be hybrid or dynamic over time; (ii) their capital structure, which is getting increasingly leveraged; (iii) investment focus and balance of domestic vs overseas investments; and (iv) organizational structure, which to this day combines active investment managers with offices everywhere, and passive asset owners with a single HQ. Section 10 sheds a light on these intricate issues that will keep shaping the industry in the years to come.

We close this unique report in terms of timing, relevance and thoroughness, with some thoughts and projections on how the industry will look like in ten years’ time. State-Owned Investors 2030 predicts that the size of the industry will be over US$ 50 trillion by the end of the decade. There will be nine funds with a trillion dollars AuM or more, and three additional funds with two trillion dollars AuM or more: NBIM, PIF and APG. If the Norwegian fund continues growing at the pace expected by the Parliament, it will be they, and not the Saudi fund, who will maintain the crown as the world’s largest SWF.  In total, we expect the number of SOIs to surpass 500 in 2030. The new SWFs may be created through managing excess (commodities or reserves) or through addressing need (development). The former may be the most significant, if countries such as Germany, Japan and Taiwan, which are poised to have large surpluses in the next few years, decide to establish their own fund.

One thing is for sure – this industry is becoming more interesting by the day, and we are proud to cover it for you. Enjoy Global SWF’s 2021 Annual Report, and we look forward to your feedback.

“State-Owned Investors are not only larger and less risk-averse – they are also increasingly sophisticated and complex organizations.”
Methodology & Universe
State-Owned Investors

Global SWF studies 438 State-Owned Investors (“SOIs”), including Sovereign Wealth Funds (“SWFs”) and Public Pension Funds (“PPFs”), which jointly manage well over US$ 27 trillion in assets. SOIs are no longer defined simply as government-owned vehicles investing their capital overseas. Today the industry is highly complex, with mixed forms of legal structure, ownership and portfolios, and we define four major groups of SOIs according to their investment behavior:

  • SWF-Stabilization Funds: this is the smallest group and yet the most intuitive. They are defined as “rainy-day funds” because they are established as a buffer mechanism that can cover fiscal deficits in times of uncertainty and market shocks. For this reason, they are usually highly liquid vehicles that allocate on average 90% of their capital into public stocks and bonds. Examples include Azerbaijan’s SOFAZ, Botswana’s Pula Fund and Chile’s ESSF.

  • SWF-Savings Funds: also known as “future generations funds”, they face less pressure for short-term liquidity and can afford to invest long-term. They are therefore more aggressive and allocate an average of 22% to private markets. With an aggregate AUM of over US$ 5 trillion, they represent some of the world’s largest investors in real estate, infrastructure and private equity. Examples include Abu Dhabi’s ADIA, Norway’s NBIM and Singapore’s GIC.

  • SWF-Development / Strategic Funds: these have represented the most popular choice among governments in the past decade, as they combine a financial goal with an economic mission, contributing to the domestic development. For this reason, some of them are set up without much “wealth” and seek to catalyze foreign capital and fundraise debt and equity from other SOIs instead. Examples include Ireland’s ISIF, Malaysia’s Khazanah and Russia’s RDIF.

  • Public Pension Funds (PPFs): PPFs have gained in significance and activity to such an extent that they are today similar in behavior to SWFs and to Savings Funds in particular, despite the obvious differences in liability profile. Both groups keep alike investment strategies and asset allocations and can be seen competing for the same stakes in public auctions and private placements around the world. Examples include Canada’s CPP, Japan’s GPIF  and Netherlands’ APG.

We are generally flexible in our definitions, which are driven by market interest. If we are too academic and rigorous, e.g., using IMF’s definition of SWF, we risk leaving out some of the funds that we deem highly interesting, acquisitive and comparable in behavior to other SOIs, including India’s NIIF, Morocco’s Ithmar Capital or Singapore’s Temasek.

 We also include certain Central Banks (“CBs”) that are highly acquisitive, for the portion that is investable, including China’s SAFE (Investment Company), Hong Kong’s HKMA (Exchange Fund), Saudi Arabia’s SAMA (Reserves Assets) and Kazakhstan’s NBK (including NOF and NIC). During 2021, we plan to analyze CBs on an exhaustive and separate manner.

We have also decided to include less traditional pools of capital, to the extent that they catalyze and manage significant funding from SOIs. These include Japan’s SVF1 (which is 60% funded by two Middle Eastern SWFs), and multilaterals-driven IFC AMC and IDB Invest – with the big caveat that the third-party capital is eliminated whenever we do totals.

Lastly, we also consider multilateral development entities such as Dammam-based APICORP, Kuwait-based GIC GSC or Beijing-based AIIB as they are like-minded investors to SOIs. The same goes for the UN’s, the WB's and the IMF's pension plans, which may have different stakeholders, but whose investment behavior could be assimilated to single-country PPFs.

We must bear in mind that certain funds are actually “asset managers” that manage capital on behalf of “asset owners”, e.g., Australia’s VFMC manages ESSSuper and other plans, Netherlands’ APG mixes ABP with seven other pension plans, and Canada’s AIMCo manages different pension plans (which conform most of its capital), and a SWF, AHSTF.

Out of the 438 SOIs, we define a “Top 100” list, which can be found in Appendix 1 and allows us to focus our efforts on the 70 most active SWFs and the Top 30 most active PPFs. This sample serves us as a fair representation of the heterogenous SOI universe. They are also dynamic lists, which we keep shaping as new funds are established and old funds get depleted.

All the data is proprietary and comes from public, first-hand sources or estimated based on our knowledge and insights. Of the Top 100, only 10 funds do not report their Assets under Management (“AuM”), including Abu Dhabi’s ADIA, Qatar’s QIA and Singapore’s GIC, and we maintain internal models that estimate the total size based on allocation and investments.

As a policy, we do not like “n.a.” and estimate numbers based on our years of experience, if undeclared. We maintain a dynamic list of the funds’ allocations (asset classes, regions and industries), as well as an exhaustive list of investments and divestments – a proprietary data set that goes back to the birth of the funds. Unless indicated otherwise, our investment data refers to private market transactions and certain public market transactions that are sizable and long-term in nature.

Lastly, we are contemporaneous in our approach and report information to clients the minute it happens. The present report, released on January 1, 2021 and reflecting the activity occurred up to December 31, 2020, serves as a proof.

Year 2020 in Review

2020 was truly a rollercoaster when it comes to investment activity. The year started very strong, with SOIs deploying US$ 23.4 billion in February alone. The flow of capital came to a sudden stop in March due to the outbreak of the COVID-19 pandemic worldwide. Funds eventually adapted to the new normal and accelerated their activity during Q3 and Q4 but concluded the 12-month period with lower numbers than in 2019. This was especially true for SWFs that had to be extra cautious given the poor economic conditions and potential fiscal deficits at home and as such did not reach US$ 100 billion in invested capital for the first time in seven years.

As outlined in the Executive Summary, stabilization and savings funds including NBIM, GIC and KIA suffered significant withdrawals and were generally more cautious. However, strategic or development funds could act more aggressively, and Mubadala, Temasek and PIF dominated the headlines throughout the year. The Abu Dhabi fund raised US$ 4 billion in bonds and spun off Mubadala Capital, a GP-like subsidiary that has raised US$ 8 billion. The Singaporean investor bailed out Singapore Airlines among other transactions. And the Saudi Arabian fund kept receiving injections and went on a remarkable shopping spree of US public equities.

At the same time, Pension Funds proved to be more resilient (see GSR Scoreboard on page 32) and almost caught up with their SWF peers in volume, even if in fewer deals. The Canadian funds continue to lead the pack, investing 14% more than they did in 2019, and teaming up to exert pressure on Sustainability issues. Federal CPP, Quebec’s CDPQ and Ontario’s OTPP were among the world’s largest spenders. PPFs from other countries such as the US (NYSCRF, CalPERS), Netherlands (APG, PGGM), and the behemoths South Korean (NPS) and Japanese (GPIF) funds were especially active too, with a rising interest in alternative assets.

The year saw a continuation of the co-investment trends shown by both groups of asset owners in the past few years: a total of 38 different transactions worth US$ 42.9 billion saw a combination of SWFs, of PPFs, or of both SWFs and PPFs. Multi-billion co-investments such as Reliance Retail (ADIA, GIC, Mubadala, PIF), RSA Insurance Group (CDPQ, CPP, OTPP) and ADNOC’s Gas Pipeline Assets (GIC, OTPP) signaled the increasing collaboration between the different group of institutional investors, regardless of their origin.

The largest single transaction was carried out by Dubai World, when it bought back on February 17 the 20% of DP World that was listed in Nasdaq Dubai. Interestingly, that very same day, CDPQ converted its stake in Bombardier into shares of Alstom and made a new injection, which translated into a US$ 3.1 billion stake. Other significant deals were ADIA’s US$ 2.8 billion investment in Elevator Technology, CPP’s US$ 2.8 billion injection in Pattern Energy and Mubadala’s contribution to a US$ 12 billion, Apollo-driven lending platform.

Overall, and despite the significant withdrawal and losses suffered in Q1, GIC remained as the most active SOI, deploying US$ 17.7 billion in 65 different deals. The Singaporean fund was closely followed by CPP (US$ 15.0 billion in 33 investments), CDPQ (US$ 12.1 billion in 30 investments), Mubadala (US$ 11.5 billion in 31 investments) and Temasek (US$ 11.3 billion in 52 investments). PIF was also significantly active especially during Q2 and Q3 in buying and selling US listed equities and ETFs, which are not reflected in the figure below.

Investors have traditionally sought safer investments during economic crises, and COVID-19 has not been an exception. SOIs have scaled back their focus in Emerging Markets to 2015 levels and increased their exposure to North America and Europe instead. The most popular destination was again the USA with US$ 43.0 billion, followed by India (US$ 16.6 billion, of which 67% was in Reliance companies), the UK (US$ 9.6 billion), the UAE (US$ 7.9 billion) and Canada (US$ 7.6 billion). China fell to #9, with US$ 5.4 billion.

More interestingly perhaps, is the change in sectorial targets. We look here at number of deals, given that investments in real assets are usually chunkier and bias the analysis. With its influence in every corner of the economy, technology has become a major investment target, and institutional investors are not lagging: a fifth of the investments carried out in 2020 were in Technology, Media and Telecommunications (TMT). The other sector that experienced a significant rise was Healthcare (HC), for obvious reasons: a total of 41 investments went into businesses pursuing vaccines and biotech.

Real Estate (RE) and Infrastructure (Infra) are still an important part of the portfolio of SOIs and will continue to be so. However, we have seen a decrease in the number of deals related to real assets, from almost half in 2015, to a little more than a third in 2020. The trend is especially noticeable in property deals, which decreased from 119 (representing US$ 75.6 billion) in 2015 to 103 (representing US$ 30.7 billion) in 2020.  Furthermore, we are seeing a change in sub-industry in both asset classes, as we analyze in the following page.

Real Estate: Investment in properties has shrunk considerably, and there has been a noticeable switch into logistics in the past year. Offices have been losing importance since Brexit prompted SWFs to stop spending on prime London real estate, and investment in hotels is half of the total in 2015. In summary, SOIs see that the long-term infrastructural needs are going to be approximately the same but are pivoting towards logistics and away from offices in anticipation of a potential permanent change in working culture.

Infrastructure: The analysis of trends in infrastructure is always more challenging as the way funds classify different segments varies significantly. In general, the asset class aligns very well with the long-term horizon, although changes in regulation can pose important risks for SOIs. In the past five years, we notice a slight tilt from O&G to Renewable Energy. Power and Utilities are still a very important part of the outreach, and so is Transportation, including airports and ports, despite the profound effect of COVID-19 in the industry.

From GFC to COVID-19

In the 12 years since the Global Financial Crisis (GFC), State-Owned Investors, and Sovereign Wealth Funds in particular, have experienced a meteoric development. The industry has grown in size and sophistication and is now better prepared to face the new economic crisis and market shock. COVID-19 has affected funds very differently and illustrated the heterogeneity of SWFs in terms of mandates, capital structures, investment strategies and organizational set-ups (see pages 34 to 37).

In 2008, the SWF industry was still in its early days and comprised 90 investment vehicles managing US$ 4.0 trillion in an independent manner. Governance was a new concept, triggered by the failed purchase of certain ports in the US by DP World, and the Santiago Principles were under development. The financial crisis was seen by SWFs as an opportunity to increase their weight into distressed financial institutions, especially for those savings funds with a more aggressive international strategy, including ADIA, CIC, GIC, KIA and QIA.

In 2020, the story was vastly different. SWFs are now better governed, more sustainable and resilient, and were better equipped for recession. Some faced a double shock given the drop in O&G prices but reacted by raising debt, at either at national or fund level. The most active group throughout the crisis has been the one formed by development funds, including Mubadala, PIF, RDIF, Temasek and TVF, in sectors especially affected by the pandemic (entertainment, travel) but also in healthcare and technology as long-term bets.

At the time of writing this report, there were significant developments regarding the approval and distribution of effective vaccines against COVID-19, which could indicate the imminent end of the lockdown. However, the lasting effects of the economic crisis will surely go beyond the first half of 2021 and may affect:

  • Funds established to cover fiscal deficits or financing needs of their hosting government, including Middle Eastern, O&G-sourced funds (ADIA, KIA, OIA), which are yet to fully assess the impact of the crisis.

  • Funds that will be responsible for the recovery of the domestic businesses significantly affected by the crisis such as national carriers, including ICD, Khazanah, Mumtalakat, NWF, QIA, RDIF, Temasek and TVF.

One thing is certain: the SWF industry will keep evolving until the next crisis. For our forecasts, see pages 38-39.

The growth of SOIs during the period 2008-2020 has been twofold: on the one hand, there has been a large number of new investment and, especially, strategic vehicles: since 2008, a total of 65 new SWFs and 28 new PPFs have been established. On the other hand, the existing vehicles have continued to receive injections of capital and assets from their governments, to accumulate investment returns and to raise debt and equity. 

We can illustrate this evolution with two specific ecosystems, one SWF-driven and one PPF-driven:

  • Abu Dhabi Inc: In 2008, the Emirate was highly fragmented in terms of SWFs. With the OPEC oil trading at US$ 98/barrel, there was an abundance of capital but not much thinking about how to channel that excess. ADIC (“the Council”) had just spun off from ADIA with its domestic portfolio, and IPIC and Mubadala (MDC) operated as two holding companies with very different focus. Together with federal fund EIA, the four SWFs managed US$ 624 billion. Today, the landscape has evolved significantly, with MDC, IPIC and ADIC merged into a multi-layered MIC and with ADIA trying to keep up with rising fiscal deficits with oil at US$ 40/barrel. In addition, the new player ADQ could play an important role on the way forward. All in all, the Emirate now hosts over 3,200 investment professionals and its AuM has increased by a 72% to over US$ 1 trillion.

  • Canada Inc: The North American country has only the world’s ninth largest economy, but its pension system has proven to be one of the, if not the, most advanced. The Maple 8, which is formed by two federal PPFs (CPP, PSP), one from British Columbia (BCI), one from Alberta (AIMCo), three from Ontario (HOOPP, OMERS and OTPP), and one from Quebec (CDPQ), managed US$ 541 billion in 2008. Thanks to retained earnings and rising contributions, that figure has more than doubled in 12 years, to over US$ 1.2 trillion. Furthermore, their average allocation to alternatives has increased from 30% to 44%, which means 3.3x more capital invested into real assets, private equity and hedge funds now. Lastly, Ontario’s new fund IMCO provides a fresh alternative and is marketing aggressively to grow its client base beyond OPB and WSIB.

Other countries with SWFs and PPFs have followed similar paths. Ultimately, we can assess the evolution of SOIs in the past twelve years according to their mandate: Stabilization funds have grown 91%, with 81.6x more capital into alternatives; Savings funds have risen a 131% with 4.6x more alternatives; Development funds have been the most popular choice with 190% more capital and 6.6x more alternatives; and Pension funds present the most modest change with 85% more capital and 3.4x more alternatives.

One thing the industry needs to improve is returns. Global SWF has undertaken a comprehensive analysis of the industry’s profitability, based on the asset allocation and benchmarks of the Top 100 SOIs. The results are illuminating and troubling. SWFs have returned, on average, 5.0% per annum in the past 12 years. This compares with 4.8% scored on average by their benchmarks and suggests a SWF industry alpha of 0.2%. Similarly, PPFs have returned on average 5.6% versus a reference of 4.6%, giving a PPF industry alpha of 1.0%.

This is a highly challenging comparison due to the lack of data as well as the heterogeneity of SWFs and PPFs. Besides different risk profiles and asset allocations, SOIs present different reporting dates (including Hijri and Persian years), which can be like comparing apples and oranges, especially in 2020 when funds closing the year in March were more affected than the ones reporting at the end of June, September or December.

Yet, we can spot certain trends and best performers. The table below lists the returns reported by ten major SWFs and ten major PPFs in the past five to six years. Among those reporting in March, CPP was by far the strongest, not even losing money in 2020. Among those releasing returns in June, NZ Super and Future Fund are outstanding, while among the ones reporting calendar years, Canada’s CDPQ and OTPP stood out.

Fund of the Year
Public Investment Fund (PIF)

Saudi Arabia is a rapidly-changing nation – especially its economic and financial landscape. The roadmap for this change is contained in the Vison 2030 program, which was announced in 2016 and aims to add diversification to the Kingdom via infrastructure, tourism, technology and health. Well until 2015, very few people outside of Saudi Arabia had heard about the Public Investment Fund (PIF), which was solely focused on the development of the domestic economy.

Fast forward to 2020, and PIF, Saudi Arabia’s SWF, has become the main engine of Vision 2030 and one of the world’s most known SWFs, under the leadership of H.E. Yasir Al-Rumayyan as its Governor. In five years, its balance sheet grew from US$ 150 to US$ 360 billion, thanks to the Fund’s strategy and its long-term investor approach. The Fund has also broadened its mandate beyond the Kingdom's borders, where today 20% of PIF's investments are international and plans to open offices in New York and London are taking place.

The portfolio is clearly split into six different pools of capital: four domestic and two international. The Saudi assets include holdings (mature investments), sector development (underdeveloped or nonexistent sectors), real estate (specific projects) and, most notably, the so-called giga projects (empty plots of land that are turned into ecosystems). The latter include the Red Sea Project, Qiddiya and NEOM – which means new future and covers 16,000 square miles in the Tabuk province.

The two international pools consist of the international diversified pool, which is dedicated to relatively liquid direct and indirect investments in different areas including real estate, debt, fixed income and public and private equity. The international strategic investments focus on industries of the future that secure significant returns and includes large commitments such as SoftBank Vision Fund (US$ 45 billion), Blackstone Infrastructure Fund (US$ 20 billion) and Uber (US$ 3.5 billion). At the end of Q1 2020, PIF invested into US businesses affected by COVID-19 in various sectors including entertainment, hospitality and energy. And between Q3 and Q4, it invested US$ 3.3 billion into subsidiaries of India’s Reliance Group (see page 26).

But the organization’s growth will not stop there, and the opportunities and challenges are significant. PIF is mandated to drive the diversification of the Kingdom away from oil and has ambitions to become one of the, if not the world’s largest SWF (see page 38), with US$ 2 trillion AuM by 2030. Whether the oil reserves of the country and the injections from other government entities will suffice for that goal, that’s a different story.

For the bold vision that requires such transformation, for its unparalleled alignment with the country’s development plans, for the growth of its balance sheet and for the significant increase in investment activity throughout the year, Global SWF believes that the Public Investment Fund (PIF) is a worthy recipient of the 2020 Fund of the Year award. We had the pleasure of offering the prize and of discussing the Fund’s performance and ambitions with Yazeed Al-Humied, PIF’s Head of Local Holdings Investments.

[GSWF] Can you please explain PIF’s transition from a local fund to one of the world’s most active SWFs?

[PIF] When the PIF was founded in 1971, its mandate was to finance domestic commercial projects. Our focus changed in the past five years and we are now driving the Vision 2030 agenda and the diversification that will enhance Saudi Arabia’s wealth, foster its transformation away from oil, build and enable the private sector, and support the country’s ambition to become a global investment powerhouse. PIF’s AuM have doubled and we are well above our target TSR since inception. We have launched 10 new sectors and more than 30 new companies, creating over 190,000 new jobs.

[GSWF] Can you please describe PIF’s corporate governance and oversight?

[PIF] All of PIF’s investment decisions are made solely on a commercial basis and are guided and reviewed by five key committees specialized in investments; audit and compliance; risk; human capital attraction and motivation; and planning and strategy execution. PIF also has 300+ representatives on portfolio company boards to oversee operations.

[GSWF] PIF’s AUM grew to over US$ 360 billion in 2020 – what is the source of this funding?

[PIF] PIF has a long-term financing strategy built around four clearly established sources of funding, including capital injections and asset transfers from the government; retained investment returns; and loans and debt instruments.

[GSWF] This year, PIF entered the Top 10 most active SOIs – what do you make of such challenging year?

[PIF] 2020 was defined by incredible global challenges, with COVID-19 having a devastating impact on lives and economies around the world. Our hearts go out to all those impacted by the pandemic. Yet, the uncertainty created important opportunities for us. We are a patient investor and deploy capital with a long-term view across sectors. Our U.S. equity acquisitions allowed us to selectively build positions in a range of high-quality companies and sectors that had the potential to help lead a global economic recovery.  During the past four years, we have increased our share of international investments from 3% to 20%; and have grown our staff from 40 to 1,000+, a phenomenal growth rate that we are very proud of. As a key part of our employee growth, we also continue to manage our Graduate Development Program, which we feel is the top such program in the country.

[GSWF] Regarding your increasing activities with equities, are you building your own internal capabilities?

[PIF] As part of our growth, our management team has been expanded and enhanced with talented executive hires from Saudi Arabia and internationally who have track records of accomplishment in evaluating promising public equity investment opportunities around the world. 

[GSWF] How does PIF juggle a portfolio of significant domestic giga-projects with high-profile investment overseas?

[PIF] Our strategy is centered around six different pools and our aim is to ensure a consistent ratio of 20% international, and 80% domestic.

The Giga-projects represent huge undertakings, and we are fully committed to delivering these projects in a timely manner. One thing NEOM, the Red Sea Project and Qiddiya have in common is the strategic aim of catalyzing the private sector to diversify the Saudi economy. As integrated ecosystems, these giga-projects will exert a powerful and enduring impact on economic development by creating or expanding key sectors, spurring local content development and attracting investment. And they will foster entrepreneurial opportunities, create cascades of jobs, and enhance quality of life.

[GSWF] What is the investment strategy regarding international investments?

[PIF] PIF’s international strategy looks at maximizing financial returns over the long term – we do not necessarily target specific regions and our aim is to invest in the world’s most innovative and transformational businesses and projects. The last couple of years have been very exciting for the Fund, as we have made significant progress internationally, e.g., our investment in Uber has created 150,000 jobs in Saudi Arabia; our injection in Jio Platforms gives PIF a chance to tap into the enormous potential of India’s digital economy, and our partnership with Lucid Motors positions Saudi Arabia as a key market for an electric vehicle that can transform the future of energy, transport, climate and electric power.

[GSWF] How do Saudi citizens benefit from PIF’s investment activities?

This model I’ve described is designed specifically to benefit and positively impact the people of Saudi Arabia. For example, our international investments could include knowledge-transfer, foreign capital investment, and the building of physical plants. Those objectives work together to create an ecosystem that serves, to quote Vision 2030, “a vibrant society, a thriving economy, and an ambitious nation” – goals manifested by dynamic new sectors, good jobs, a capable workforce, and Saudi Arabia’s valuable and impactful role on regional and global stages.

[GSWF] How does PIF typically work with its portfolio companies?

[PIF] We do that through the “PIF Way”, which is our approach to enhancing the value of these companies through our independent governance and operational framework. PIF establishes businesses along with other investments and partnerships intended to unlock new sectors. We are an active investor with well over 300 representatives serving on the boards of our portfolio companies, which fosters companies across sectors, asset classes and geographies to become regional and global champions, stimulate innovation, create and nurture partnerships, and speed the transfer of knowledge and technology. In turn, these fully owned companies create new income streams, maximize resources, and spur innovation.

[GSWF] Lastly, what is the goal of the upcoming annual Future Investment Initiative conference?

[PIF] The FII Institute is a stand-alone, not-for-profit foundation that brings together a diverse group of global thinkers and investors building relationships and access, along with educating the global community on trends and initiatives. As such, we consider it a key component in the Kingdom’s ambition to become a global investment powerhouse. The FII Conference itself is now one of the very few top business and financial conferences in the world. Last year we welcomed nearly 300 speakers from more than 30 countries, and 6,000 attendees from 90 countries. We look forward to another compelling event as the next FII conference takes place January 26-28, 2021 under the theme “The Neo-Renaissance.”

Today, Oil & Gas industry accounts for roughly 87% of Saudi budget revenues, 90% of export earnings and 42% of GDP. It also represents 38% of PIF’s portfolio although that is changing rapidly as the Fund increases its focus in technology, financial services, public sector, mining and agriculture, among others. In June of this year, PIF sold a 70% stake in Saudi Basic Industries Corporation (SABIC), the world’s fourth-biggest petrochemicals company, to Saudi Aramco for US$ 69.1 billion.

According to the Program designed in 2017, PIF’s progress in 2020 would be measured with four KPIs:

  • Assets: US$ 400 billion AuM (up from US$ 224 billion) and 4%-5% Total Shareholder Return (up from 3%)

  • New Sectors: 20% share of assets in new sectors, which should contribute US$ 8 billion to Saudi’s GDP.

  • Partnerships: 25% of portfolio in international assets and US$ 5.3 billion cumulative contribution to FDIs.

  • Economics: 11,000 direct high-skilled jobs created and US$ 56 billion investments in technology and R&D.

These goals imply a significant deployment of capital, especially after the pandemic. While other SWFs may be accountable to cover fiscal deficits, PIF supports the national agenda by investing into local businesses. In November of 2020, the Crown Prince confirmed that PIF had injected about US$ 83 billion in Saudi over the past four years, contributing to the creation of 190,000 jobs. The Fund is expected to increase the pace until 2030, investing US$ 40 billion in 2021 and 2022 in new sectors such as tourism, sports and transportation.

Pursuing such dual mandate of international financial returns and domestic economic progress is not an easy task. PIF will need to ensure alignment with other government vehicles while it continues to enable and support Saudi Arabia’s private sector and will also depend on the achievement of the macroeconomic targets defined in the PIF Program 2018-2020, requiring a close monitoring of the progress beyond 2020. The foundational pillars are certainly already there.

Asset Class of the Year
Private Credit

Over the years, Private Credit (PC) has emerged as an asset class in its own right, having won growing support from SOIs, who have replaced more opportunistic investors as the main source of funding. COVID-19 is putting the skids on an evolution that was already underway as it coincided with the end of a long economic expansion that saw underwriting standards dip as the squeeze on yield led to increasingly risky financing decisions.

As the economic cycle matured, all the low hanging fruit – low-risk investments with a reliable return – dried up, leaving investors with riskier opportunities they would not have previously considered. With fixed income operating in a difficult environment, public equity rocked by high volatility, and rising fears that a private equity bubble is about to burst; private credit is becoming increasingly popular among SOIs in the hunt for yield.

The asset class has increased significantly, from 2% of portfolios in 2015 to 3.2% in 2020 among the Top 10 SOIs (see table 6). Sovereign investors benefit from lower liability constraints that enable them to take on more liquidity risk than banks. Their greater risk appetite is driven by their long-term investment horizon.

The trend is quite different from the trend seen in the few years after the 2008 GFC when private credit funds lost favorability. In the decade since the crisis, the AUM of global private credit has grown from US$ 238 billion to US$ 787 billion, according to the Alternative Credit Council’s (ACC). The evolution and growth of PC led to an increasingly professional approach with rigorous due diligence helping to lower risk. Despite uncertainty and risks of a systemic crisis, ACC found that managers were set to raise US$ 100 billion in 2020 as the asset class is increasingly seen as way of hedging portfolios, matching the lending volume in 2019.

The asset class has been notably resilient amid the pandemic with managers successfully protecting their portfolio values as well as deploying dry powder to add assets. While the lockdown reduced allocations to private credit in the second quarter, investment is expected to pick up in 2021 as the market readjusts. With traditional banks restricting lending, private credit will serve as a crucial source of financing in the economic recovery, particularly for mid-market companies.

In its survey of managers with aggregate AuM of US$ 400 billion in private credit strategies, ACC found that 80% were bullish in their appetite to deploy capital over the next 12 months with 44% saying distressed debt opportunities will peak in the first quarter of 2021. SOIs will be a growing source of dry powder for private credit strategies with 88% of fund managers believing pension funds will increase allocations over the next three years, while 67% of SWFs expected to increase investment.

Today, the list of Top 10 allocators to the asset class is led by the Canadian Funds. Quebec’s CDPQ has doubled its investments in private debt from 2016 to over US$ 27.4 billion in 2020, and it expects it to reach US$ 39 billion by 2024. Following it closely is federal CPP, which boosted its PC Program significantly when it bought Antares Capital from GE for US$ 12 billion in 2015. Together with OTPP, PSP and OMERS, they hold over US$ 83 billion in private credit alone.  The non-Canadian SOIs in the Top 10 including CIC, GIC, ADIA, Future Fund and CalPERS maintain more modest allocations, but still very significant in absolute terms due to the sizes of their balance sheets. Some of these funds cover the asset class under Fixed Income, and others under Private Equity, but it is becoming an important part of their portfolio, nevertheless.

Emerging Asian markets are in the sights of SOIs, which are willing to take on the high risk as they offer potential high rewards. Asian emerging market junk bonds look set to be the focus of attention with the default rate for high-yield bonds at 4%, compared to 8% in the US, according to a recent report by Goldman Sachs.

India’s Edelweiss Alternative Asset Advisors’ US$ 900 million ESOF III special opportunities fund provided the perfect illustration of a year when emerging market private credit became a big draw for SOIs. By October, around US$ 675 million was raised from OTPP, Florida’s SBA and Swedish AP4 for the fund, which focuses on providing structured credit to Indian companies, including distressed private credit opportunities.

But OTPP has not been the only Canadian PPF to enter the Indian direct lending sector. In 2019, CPP invested US$ 225 million in the India Resurgence Fund, a distressed assets buyout platform set up with Piramal Enterprises Limited and Bain Capital Credit as joint sponsors. ADIA also anchored the Kotak Special Situations Fund, focused on Indian distressed debt, with a US$ 500 million investment in 2019.

In September 2020, distressed debt was also a theme in the formation of a multibillion-dollar direct platform established by QIA and CSAM, which targets loans to upper middle-market and larger companies in the US and Europe. Meanwhile, Abu Dhabi’s Mubadala forged a US$ 3.5 billion direct lending partnership with Barings, which followed its decision to anchor a US$ 12 billion alternative credit partnership led by Apollo. Overall, SOIs committed over US$ 10.5 billion to PC in the 21 months from March 2019 to November 2020.

Global SWF expects to see sovereign investors look for further opportunities in debt default risks. Years of low interest rates prompted companies to issue bonds to grow their businesses. Corporate debt among non-banking businesses reached US$ 75 trillion by end-2019, up from US$ 48 trillion at end-2009. Over that time, corporate bonds rated BBB went from about a third of the market to half of it. The economic recession tipped a sizeable amount of debt into default with losses rippling through bond markets.

Yet, there are downsides in distressed debt, beyond default risks. A crowded market could diminish the yield potential. An investor bandwagon could see capital deployed too early, leading to unattractive valuations as investors compete to snap up opportunities. Nevertheless, sovereign investors are quick learners and have sufficient weight and sophistication to dominate the market going forward.

Not only will SOIs remain an important source of capital for private credit, but they are also likely to come into their own as direct lenders. So far, SOIs have favored partnerships with GPs or banks due to their added value and to the lack of internal capabilities, origination function and access to deals. But this will surely change. Global SWF believes that SOIs will build up their own in-house management as they increase their knowledge and skills base and deepen and broaden their exposure. The evolution of private credit is set to see SOIs play the same pivotal role in the asset class as they do venture capital in the years to come.

Region of the Year
China & India

Asia’s two behemoths, India and China, have been vying for the attention of SOIs in recent years, attracting billions of dollars in fresh inward investment. Yet, both countries have seen a different pattern of investment that correlates with the shape of their economic development and their place on the development curve.

China: The Emergence of a Tech Super-Power

While India has lured investors in infrastructure, retail, telecoms and financial services, China has seen a different pattern of investment. In recent years, SOIs have been more cautious in their exposure to Chinese private markets and in 2019 China fell behind India in sovereign investor inflows.  The pace and volume of investment stepped up as the year progressed and SOIs became more confident of China’s economic resilience in the pandemic. More than 80% of transaction volume and 60% of total investment value came in H220.

Singapore’s Temasek and GIC remain the main stalwarts, representing three-quarters of SOI direct investment in 2020. For the first time in its history, Temasek’s portfolio was more weighted to China than Singapore in FY2019/20, climbing to 29% of AUM – although factors such as the depreciation of the Singaporean dollar and falling domestic public equity values also played a role.

Over the past two years, real estate has been the biggest focus of attention, making up 46% of allocations in 2019 and 48% in 2020, despite renewed fears that the bubble is about to burst in the sector. However, the volume of acquisitions is small and comprised of big-ticket assets, such as GIC’s US$ 1.3 billion purchase of LG Twin Towers in Beijing early in the year. The US$ 488 billion fund turned out to be the sole SOI in the sector over the year with further investments in a Beijing office portfolio, a logistics property fund led by CITIC, and a residential property joint venture with Yanlord – all three investments, totaling US$ 930 million, enabled GIC to maintain a toehold in different RE segments.

However, real estate is not sovereign investors’ core interest in China. The Asian country is home to a rapidly growing base of tech-savvy consumers with rapid growth in mobile penetration and over a fifth of internet users reliant on their cell phones. The potential for fast adoption of innovative tech, particularly in the retail and consumer sector, make investment in Chinese software, online payment systems, entertainment, and e-commerce an enticing prospect. China is rapidly becoming a cashless society and accounts for around a half of the world’s e-commerce transactions.

Such appetite for tech has overcome certain obstacles, such as laws introduced in 2016 to regulate internet advertising and to implement censorship controls, which had far-reaching effects on e-commerce and social media. These encumbrances are outweighed by government measures introduced in the past two years to nurture tech, including the “New Generation Artificial Intelligence Plan” issued by the State Council to prioritize China’s leadership in AI; Made in China 2025, which seeks to move China from being a low-end manufacturer to becoming a high-end producer of goods for its growing domestic consumer base; and, the China Standards 2035 Plan, an ambitious plan to write global standards for the next generation of technology. At the 2020, the CCP announced the government would spend US$ 1.4 trillion on a digital infrastructure public spending program.

Since 2018, SoftBank Vision Fund – with its strong SOI backing – has plunged around US$ 12 billion in Chinese private equity with exposure to these tech-driven consumer segments, from TikTok creator ByteDance to the world’s most valuable AI pioneer SenseTime. China’s biggest tech firms are backed by SOIs, including Alibaba, Ant Financial and TenCent with GIC, Temasek and Khazanah leading SOI investment. These firms have helped spur a number of Chinese unicorns spanning social media and e-commerce, which have also received SOI backing, such as ride hailing app Didi-Chuxing and food delivery app Meituan-Dianping.

China’s tech sector did not cease to be a big attraction in pandemic-hit 2020, representing just under a third of transaction volume and a quarter of value. Within the segment, SOIs focused on cloud and data storage services as well as software developers. GIC and Temasek each invested US$ 200 million in unicorn EdTech developer Yuanfudao, which surpassed QIA, CPP-backed, Indian rival Byju’s in terms of value. ADIA became the largest investor in Gaw Capital’s internet data center platform’s US$ 1.3 billion fundraise, giving it exposure to a segment with an infrastructure-like long-term revenue stream but with tech-like growth prospects.

High-tech manufacturing is also an area of growing interest as Chinese industry matures and moves up the value chain, with GIC investing an estimated US$ 120 million in flash memory chip producer GigaDevice Semiconductor. Market disruption was a theme in other sectors with QIA and Mubadala playing a prominent part in the US$ 400 million fund-raising by Tesla’s Chinese rival Xpeng ahead of its planned US IPO.

However, in most segments, SOI direct investment was still down from its 2018 peak, potentially because SOIs were keener to invest in public equities with relatively low P/E ratios in Shanghai, robust stock price growth and the appreciation of the renminbi pointing to opportunity for growth. There was certainly more SOI activity in Chinese IPOs with GIC taking the lead. In September, the Singaporean SWF invested in three blockbuster IPOs as a cornerstone investor: real estate software developer Ming Yuan Cloud Group’s near US$ 800 million IPO, the US$ 2 billion IPO of agri-food giant Wilmar International’s Chinese subsidiary Yihai Kerry Arawana, and bottled water manufacturer Nongfu Spring’s US$ 1.1 billion IPO. All three offerings gave GIC exposure in markets that have demonstrated high rates of growth in recent years.

The postponement of the record IPO of Ant Group in November 2020, mainly due to changes in the fintech regulatory environment, dampened SOI hopes of taking a slice in the tech-driven financial services firm. The State Administration for Market Regulation introduced new laws aimed at preventing Internet platforms from assuming a dominant market position or obstructing fair competition. While Ant Group’s giant IPO has been thrown into doubt for the time being, the move against anti-competitive behavior could support China’s thriving tech ecosystem and therefore continue to fuel SOI venture capital. The new rules will see retailers and merchants get a higher cut of revenue from the e-commerce platforms they use, and the regulator could target exclusivity agreements which prevent merchants from selling on multiple rival platforms. The moves will have a negative effect on e-commerce majors but will increase competition and reduce the bargaining power of dominant players over suppliers, thereby ensuring lower cost of entry to new firms and a broader array of investment opportunities. For SOIs, high levels of competition and market disruption offer greater potential for long-term yield and the opportunity for early-stage investment in the next potential unicorn.

India: Shift from Infrastructure to Consumer

India’s rapid population growth will likely ensure that the country surpasses China as the world’s most populous country in 2027 with the government targeting a GDP of US$ 5.0 trillion. A proactive approach to sovereign investment has yielded more than US$ 50 billion in investment from SOIs since 2015, of which a fifth has been devoted to infrastructure due to the government’s aggressive efforts to ramp up FDI in the sector. The National Infrastructure Pipeline (NIP) aims to support growth of India’s infrastructure sector with total investment of US$ 1.4 trillion and is bolstered by liberalization of FDI regulations and highway privatization.

As part of India’s aggressive drive to woo SOIs, the FY2020/21 budget provided a tax exemption for specified infrastructure investments. Mubadala became the first SWF to be granted 100% income tax exemption for long-term infrastructure investments in November. The government also seeks to help channel FDI in infrastructure via its quasi-SWF National Investment and Infrastructure Fund (NIIF), which was formed in 2015. NIIF recently closed its Master Fund with US$ 2.34 billion from ADIA, AustralianSuper, CPP, OTPP, PSP and Temasek, as well as USA’s IDFC, the government of India and four other Indian leading institutions. NIIF also registered a Fund of Funds, which has already closed commitments from AIIB and ADB, and a Strategic Fund, for a total AuM of US$ 4.3 billion. Additionally, in November 2020, the government announced it would infuse US$ 810 million equity in NIIF’s debt platform, in its attempt to drive infrastructure creation. 

SOIs are looking beyond highways to growth areas that resonated with their ESG policies. Although small, the renewables sector is coming into play as a target for rapid expansion of electricity generation, which is essential to meeting demand and preventing load-shedding that has undermined the country’s full manufacturing potential. Independent solar and wind power generators have been major beneficiaries, drawing around US$ 4 billion from ADIA, GIC, CPP and CDPQ in some of India’s leading renewable energy producers. India’s emerging green economy will require additional investments of US$ 330 billion between 2020-30, according to the government. With their minds on technological innovation and environmental sustainability, yield-seeking sovereign investors will continue to remain exposed to India’s clean energy revolution.

In 2020, SOIs pivoted towards telecom and consumer sectors and away from roads and renewables, in order to diversify their exposure within the Indian markets and to endure problems with project completion. Land acquisition challenges, cost overrun, and the deteriorating outlook have eroded investor confidence in new highways. Although the challenges have eased over the past two years, around a sixth of major road projects are still behind schedule with an average cost overrun of 28%. This situation has been exacerbated by the pandemic and has hit revenue ratios, leading to a slowdown in construction and to a waned SOI interest.

The dramatic effects of lockdown on the Indian economy, which sent it into a tailspin in Q2 2020, prompted Canadian PPFs to pause their investments from May. CPP suspended its US$ 190 million investment in an infrastructure arm of Mumbai-based logistics firm JM Baxi, and CDPQ halted the purchase of the US$ 325 million Highway Concessions One portfolio from GIP, its first acquisition of roads in India. The two funds had previously been among the biggest investors in the country’s public and private equity markets.

During 2020, Industry tycoon Mukesh Ambani’s US$ 185 billion empire Reliance Industries served as the lightning rod for SWFs and PPFs keen to gain exposure to a fast-growing market of 1.4 billion consumers and to a group pushed by Modi’s Digital India Initiative, and poised to become India’s Alibaba or Tencent.

SOIs focused on two areas of the Group’s business: retail and telecom. ADIA, GIC, Mubadala and PIF featured prominently in fund-raising by Reliance Retail Ventures Ltd (RRVL) in Q3-Q4 2020, which intends to link neighborhood stores for online deliveries of groceries, clothing, and electronic goods through its JioMart platform. The move linking SMEs to e-commerce is a direct challenge to Flipkart, to Amazon India and to Big Basket. Beyond RRVL, Temasek devoted up to US$ 160 million to restaurant delivery service Zomato ahead of its planned IPO in 2021, and ICD invested US$ 121 million in meat and fish retailer Freshtohome. Even RE became oriented towards e-commerce with GIC taking an 80% of a US$ 750 million JV with ESR in December.

India’s digital transformation leap in retail would be impossible without the development of mobile network and increased internet penetration, which stands at about 1.2 billion subscribers today. Reliance gained considerable traction with its telecoms’ unit Jio selling a 5.4% stake to ADIA, Mubadala and PIF. Like RRVL, Jio is seeking to disrupt the market by aggressively under-cutting established rivals with a low-cost new fiber-to-the-home broadband service plus additional offers. Jio’s onslaught has slashed the number of players in the market and secured its position as the country’s biggest wireless operator with 400+ million subscribers.

Sovereign investment in telecoms infrastructure is supporting Jio’s relentless growth. ADIA and PIF invested US$ 506 million each to take a 51% stake in the Digital Fibre Infrastructure Trust (InvIT), and BCI and GIC teamed up with Brookfield to acquire a telecoms tower company from Reliance in August 2020 for US$ 3.4 billion. With Jio the portfolio’s anchor tenant under a 30-year Master Services Agreement, the partners are looking to increase the number of towers by 30% to match the telecom operator’s growing subscriber base. 

Beyond retail and telecoms, SOIs revived their interest in the financial sector with their first serious investment since 2017. GIC and SAFE poured US$ 670 million into India’s leading mortgage lender and largest privately owned bank HDFC. The choice still indicated wariness towards a sector that is burdened with high levels of bad debt. With the lowest NPL ratio of the top 10 banks and the highest level of NPL provisioning, investment in HDFC was a safe option for SOIs seeking a larger PE exposure to the Indian financial sector.

Outlook for China and India

Although rivals, India and China have much to teach each other: India’s strength has been to aggressively fund-raise for investment in infrastructure, while SOIs have been lacking in China’s PPP pipeline. With the backdrop of COVID-19, China developed its Plan 2021-25 with a focus on supply chains, infrastructure and digital-economy capabilities. Ultimately, China is seeking to double GDP per capita by 2035 with a sustainable level of debt, and foreign capital and SOIs in particular could play a central role in it.

Meanwhile, India will need to emulate China in encouraging SOIs to establish a more permanent presence. As India becomes an ever-more important destination for investment, we expect more SOIs to set up new offices, with the tech capital Bangalore potentially becoming a target for VC as India’s Silicon Valley. With a high skills base, India will be positioning itself as a Western ally amid rivalries with China, creating a regulatory environment that provides better protections for tech companies than China’s opaque system. By spurring VC, SOIs will be able to participate in the fast-paced evolution of other high growth sectors where Tech can play a role, including infrastructure, education, retail, telecommunications and financial services.

Industry of the Year

The Fourth Industrial Revolution will be driven by disruptive technologies that promise to bring seismic changes to industrial sectors and, in turn, wider society. The way we live, work and communicate will be transformed and defined by innovative technology. As investors with long-term horizons, SOIs are looking to gain exposure to the potentially high returns derived from technological change. During 2020, COVID-19 hastened this rapid transition and boosted technology and innovation private equity opportunities.

Before the crisis hit, there was mounting concern that the influx of VC into the Tech sector was leading to inflated asset values, generating fears of a repeat of 1999 when the tech bubble burst. Tech investment by SOIs reached an annual peak of US$ 22 billion in 2017 amid a massive slew of capital from the SoftBank Vision Fund (SVF1), which invests in emerging technologies and has also invested in disruptive startups in real estate, retail and transportation. Backed by PIF (45%) and Mubadala (15%), SVF1’s investments ended in 2020 and represented around half the capital deployed in technology by SOIs in the past six years.

SVF1 points to the significant risks involved in betting on venture capital in tech. SoftBank admitted that it racked up a US$ 18 billion loss in 2019 and some investments had arguably gone awry in the frenzied bid for scale and market share. Although Uber’s IPO was one of the biggest in history raising US$ 8 billion, a badly timed launch meant it failed to reach expectations – which, alongside the near-collapse of WeWork, raised questions over SoftBank CEO Masayoshi Son. Although the fund bounced back into the black on a wave of equities growth in 2020, the doubts over SoftBank’s strategy have prompted SOIs to opt out of Vision Fund 2.

If we isolate SVF-1’s effect, 2020 was a record year for Tech direct investments by SOIs, 74% up from 2019 to US$ 12.7 billion. SOI investments in e-commerce and data centers and cloud services remained largely on a par with 2019 levels. However, there was a sharp pivot away from fintech and towards information technology and life sciences and biotech. On the one hand, SOIs appeared to be reluctant to expose themselves to a high-risk financial services sector at a time of plummeting household spending, while on the other they were seeking opportunities created by a black swan event that looks set to define future trends in tech.

Leading the pack was Temasek, which deployed around US$ 2.3 billion into tech-related sectors especially on e-commerce and life sciences. Stablemate GIC was the second biggest direct investor, with US$ 2.2 billion, and led SOI investment in data centers and cloud. The third largest spender was Mubadala, with US$ 2 billion in direct investment and a further US$ 2 billion in a long-term tech strategy by Silver Lake. In fourth place was CPP, which devoted two-thirds of its US$ 1.4 billion to IT with the remainder spent on life sciences. PIF was the fifth biggest, largely due to its massive allocation to e-commerce in India.

8.1. Infrastructure of the Digital Age:

Data centers and cloud computing are the infrastructure of the tech revolution. Like conventional transportation infrastructure, the segment provides long-term income generation, yet exposure to tech ensures long-term growth in scale. In 2020, 40% of SOI investment in the sector was allocated to developed Asia with a further 40% devoted to emerging markets and the remainder in Europe and North America.

GIC was the biggest investor in the sector, providing nearly a third of investment. Much of its investment was devoted to a US$ 1 billion joint venture with Equinix to develop and operate hyperscale data centers in Japan to support the workload deployment needs of a targeted group of hyperscale companies, including the world's largest cloud service providers. The venture follows on from a similar deal signed in 2019 by the partners for hyperscale data centers in Europe, indicating a long-term partnership in the sector.

Canadian pension fund OTPP has also sought to develop its exposure to data centers, having made a substantial allocation to Compass Datacenters in 2017. It led a US$ 360 million funding round for Singapore-based Princeton Digital Group which has built a portfolio of 18 data centers across four countries – China, Singapore, Indonesia, and India - and serves top hyperscalers, internet and cloud companies.

SOIs are also seeing the value of bolstering domestic data center infrastructure as a strategic national investment. Mubadala took a stake in UAE-based Group42, an artificial intelligence and cloud computing company, via the integration of Injazat and Khazna Data Centers. Meanwhile, Future Fund announced in early 2020 its first direct investment in data centers, having acquired a 24.1% stake in Canberra Data Centre (CDC).

8.2. AI and EdTech: Growth Opportunities in IT:

AI is a leading disruptive technology focused on machine learning that is driving a paradigm shift throughout the tech sector. A highlight of 2020 was the US$ 2.3 billion fund-raising round by Waymo, the self-driving technology company owned by Google’s parent Alphabet, with Mubadala and CPP stumping up around half the capital. The firm intends to further develop AI in the transformation of mobility and transportation as its scales up its business, in partnership with Volvo. OTPP also sought exposure to autonomous transportation by leading a US$ 267 million injection in China’s Pony.ai, as it expands is robotaxi fleet across China and the US.

The pandemic has also served as a catalyst for investment in EdTech, which can enhance and deliver learning through apps, video conferencing, and software. Lockdowns and social distancing have prompted an acceleration in in digitalization in education with global VC estimated by Global SWF at US$ 8 billion in 2020. SOIs have participated in the some of the biggest funding rounds of EdTech, long before the pandemic struck. Since 2015, Temasek has led two funding rounds for Chinese 17ZUOYE, totaling US$ 350 million. The platform now has nearly 80 million student, parent and teacher users with 140,000 participating schools.

In October 2020, both Temasek and GIC participated in the US$ 1 billion funding round by another Chinese EdTech startup Yuanfudao, which has amassed 400 million users in China. The firm operates live tutoring platforms and online homework services which have surged in popularity as the pandemic forced learning to migrate to online classes. Now valued at US$ 15.5 billion, Yuanfudao’s fundraising has enabled it to surpass India’s Byju’s, valued at US$ 12 billion, as the world’s biggest EdTech provider. Byju’s has grown exponentially since it achieved unicorn status in late 2017, having gained US$ 123 million in capital from CPP in December 2018 and a similar amount from QIA in July 2019.

Not content with backing just one player in Chinese EdTech, GIC also led a US$ 200 million funding round for Aixuexi, which is specializing in STEM education and is leveraging cloud computing, AI and internet of things in its bid to sustain its exponential growth. Meanwhile, Temasek dipped its toe into the regional EdTech sector in December 2019 with its participation in the US$ 150 million funding round by Indonesia’s Ruangguru via its EV Growth venture capital fund – one of the largest funding rounds for a Southeast Asian startup – in what Global SWF believes is the start of a trend in tech investments by the investor in the region.

8.3. Health and Climate Crises Drive Life Science Allocation:

  The advent of a global health crisis triggered large cash injections into life science and biotech companies as they sought to create treatments and vaccinations to combat COVID-19. SOIs also looked to longer term trends as the world grapples with the enduring problem of climate change. 2020 investments were largely focused on early-stage funding rounds seeking to support the entire lifecycle of promising startups. The strategy saw 40 deals over the year with a median value of US$ 45 million – a relatively low value for SOIs.

Temasek led a US$ 250 million private placement in Germany’s BioNTech, which paid off with the discovery and approval of a COVID-19 vaccine developed in conjunction with pharma giant Pfizer. Mubadala also tilted heavily towards biotech with a US$ 235 million private placement in German drug discovery company Evotec, which is developing antibodies to treat COVID-19. CPP, PSP and Alaska PFC joined a US$ 700 million funding round by startup Sana Biotechnology to support its development of gene and cell therapies.

A small but increasingly important area of tech for SOIs relates to agriculture and food production on the back of a potential food security crisis. The dominance of GIC and Temasek in this segment should come as no surprise given Singapore’s lack of sufficient land for crops. In 2020, Temasek extended its portfolio into urban farming by forging a JV with Leaps by Bayer and by spending US$ 365 million in acquiring an 85% stake in Israel’s Rivulis Irrigation, which applies smart technology to agricultural systems. Other allocations included US-based Impossible Foods and Australian startup V2Food, both of which stand for ethical consumer choices. Meanwhile, GIC led a US$ 353 million round by Apeel Sciences, which is creating solutions for food waste, and CPP injected US$ 300 million into Perfect Day, which has pioneered its proprietary flora-made dairy proteins.

ADIA deserves some extra kudos in this section, after it invested US$ 100 million in Moderna’s pre-IPO, Series G in  February 2018. After the IPO in December 2018 and the approval of its COVID19 vaccine in December 2020, the company is now worth US$ 55 billion, and we estimate that the Abu Dhabi fund has made around 22x their money in less than three years, becoming a great example of VC’s potential upside for SOIs.

8.4. Cautious on Fintech, but Aggressive in EM e-commerce:

In e-commerce, SOIs turned their attention to fast-growing emerging markets where an already rapid process of retail digitalization was boosted by the impact of lockdown. India’s Reliance Retail Ventures Ltd (RRVL) attracted the bulk share of SOI dollars with ADIA, GIC, Mubadala and PIF totaling US$ 3.7 billion. RRVL benefits from vertical integration with the Reliance Group’s 4G data and mobile services but is also drawing in local independent retailers into its e-commerce logistics to deliver goods ordered online.

Temasek also joined in the bid for growth in Indian e-commerce with its continued backing of online restaurant delivery company Zomato with a further US$ 62 million on top of the investments made since 2015, ahead of an IPO in 2021 targeting a US$3.5 billion valuation. It also continued to pump funding into Indonesia’s Tokopedia (up to US$ 675 million), which is preparing for an IPO, too. The Singaporean investor and Google expect that the Indonesian e-commerce market will grow from US$ 21 billion in 2019 to US$ 82 billion in 2025.

While there was hunger for high growth deals in e-commerce, SOIs restrained their fintech investments in 2020. Throughout the year, VC deal-making in fintech was dominated by rounds of more than US$ 100 million, which SOIs appeared to avoid due to a combination of risk aversion, a lower level of early-stage fundraising rounds, and an expectation that traditional providers are rapidly digitalizing their services. Temasek injected capital into UK-based FNZ, joining existing shareholder CDPQ. GIC led a US$ 500 million round by Affirm, the San Francisco fintech startup begun by PayPal co-founder Max Levchin. And Mubadala aimed for earlier stage investments in tech-enabled insurance broker Gabi and home-grown MidChains.

ESG: A Wake-Up Call

Just like the term “SWF”, the term “ESG” was coined in 2005 to refer to the three central factors in measuring the sustainability and societal impact of an investment in a company or business: Environmental, Social and (Corporate) Governance. Since then, the assets acquired by institutional investors under ESG strategies have grown more than four-fold, to US$ 6.2 trillion1 in 2020. But ESG is not only about green economy, and the three factors need to be broken down and analyzed separately:

  • The factors related to the “E” are perhaps the most intuitive: most SOIs producing a sustainability report include “carbon emissions” and “investments in renewable energy” as KPIs and several of them have committed to having net-zero portfolios by 2050. Canada’s CDPQ has created the ultimate incentive by pegging their staff’s annual bonus to the carbon emissions of the portfolio they manage.

  • The “S” part is arguably rooted in an older acronym, CSR (Corporate Social Responsibility), and it refers to elements that may arise between a company and people including human capital development. In practice, most SOIs set up goals of diversity and inclusion, which enhance performance and impact, e.g., Abu Dhabi’s ADIA employs 60+ nationalities, although almost all directors are male, UAE-nationals.

  • The issues related to the “G” relate to both Corporate Governance (e.g., Board composition, executive pay, audits, internal controls and shareholder rights) and Corporate Behavior (e.g., business ethics, cybersecurity and tax transparency). Norway’s NBIM, which holds over 1.5% of all listed companies worldwide, has for a long-time exerted pressure on portfolio companies over Governance issues.

ESG is handled by investors in two very different ways: the divestment approach involving exiting businesses over issues such as carbon emissions and human rights violations, and is arguably the strictest, championed by NBIM with 167 companies on its exclusion list as of Dec’20. On the other hand, the engagement approach makes use of proxy voting and “carrot and stick” policies with portfolio companies, defending a greater potential in the long term, and is more commonly used by Japan’s GPIF and among Canadian PPFs.

Also, in 2005, the then United Nations Secretary-General Kofi Annan invited a group of the world’s largest institutional investors to develop the Principles for Responsible Investment (PRI). A few months later, the initiative was launched by 63 signatories managing US$ 6.5 trillion, including 11 of Global SWF’s Top 100: Canada’s BCI, CDPQ and CPP, France’s FRR, Ireland’s ISIF, Netherlands PFZW (PGGM), New Zealand’s NZ Super, Norway’s GPF (NBIM), Sweden’s AP2, and US’ CalPERS and UNJSPF. Today, the number has risen to 36.

The number of PRI members has increased significantly to 3,575 investors managing US$ 103.4 trillion as of 2020. Signing up entails committing to incorporating ESG factors into the investment decision process and into ownership policies and practices.

In addition, since 2015, the objectives are measured by a set of 17 interlinked Sustainable Development Goals (SDGs) that “help investors align their responsible investment practices with the broader sustainable objectives of society”. The SDGs replaced the Millennium Development Goals (MDGs) and are intended to be achieved by year 2030, in what is known as Agenda 2030.

Today, institutional investors including SOIs use terms such as “Responsible Investing”, “Sustainability”, “ESG” and “SDG” interchangeably, although they all have subtle differences that need to be understood as the industry grows in both size and importance. COVID-19, for instance, has been a trigger for many conversations around preventing and preparing for the next market shock, and around sustainability as means of securing resilience. But what is the relationship between Governance, Sustainability and Resilience?

Governance as a stand-alone concept has been examined closely since the early 2000s. DP World’s blocked takeover of certain US ports in 2006 and the GFC pushed the agenda, paving the way for the Generally Accepted Principles and Practices (GAPPs, or Santiago Principles), under the patronage of the IMF. However, the 24 voluntary standards for investment practices, governance and accountability have not changed since 2008 and supporting members are now effectively under a self-regulation regime via the IFSWF.

If Governance has been pursued by SOIs since 2008, and Sustainability since 2015, we could say that Resilience is going to be a topic of conversation at every Board meeting of institutional investors from 2020. Despite taking a long-term view, these investors have grown in sophistication and they often seek to ensure that their rising costs are justified by the ability to outperform the markets or taking the hit better than others. “R” can be viewed as a function of “G” and “S”: only the most robust and responsible SOIs will be able to survive.

The combination of these three elements in the GSR Scoreboard serves as a reality check for asset owners to measure and improve performance and enables asset managers to stay informed of important aspects of their stakeholders’ operations. It is comprised of 25 different elements that are answered binarily with equal weight and the results are then converted into a percentage scale for each of the funds. The study is applied to Global SWF’s Top100 and repeated annually. For a list of GSR elements, please refer to Appendix 2.

We performed our latest assessment in June 2020, rating 25 elements for the Top 100 Funds (2,500 data points). Only one fund achieved a perfect score: Australia’s Future Fund. Despite keeping a low key when compared to Norway’s NBIM and to NZ Super Fund, we believe the Australian is an exemplary fund when it comes to GSR issues. This fact, along with a sound investment strategy, has historically yielded excellent results and allowed Future Fund to make money for the nation's citizenry in both rising and falling markets.

Following those three SWFs are six PPFs (three from Europe and three from North America) that also perform very well – Denmark’s ATP and PensionDanmark, Sweden’s AP-Fonden, Canada’s CDPQ and the US’s CalSTRS and NYSCRF – along with Singapore’s Temasek. Not surprisingly, Middle Eastern funds rank much lower with only Abu Dhabi-based Mubadala (72%) and ADIA (52%), and Dammam-based APICORP (68%) scoring 50% or more. The other 18 funds from the region perform poorly, especially around Resilience.

Resilience is an issue of mounting concern and institutional investors still have a lot of work to do when it comes to legitimacy, discipline, spending control, strategic asset allocation and crisis management. We might see several Government capital calls, liquidity struggles and some merger even after the COVID-19 pandemic is over. Overall, the Top 100 Funds have had many years to work on Governance (score 6.5/10) but will have to up their game with their Sustainability (score 5.1/10) and Resilience efforts (score 2.4/5). Only time will tell if they start taking these issues seriously and continue to advance as leading investors. We will be watching.

On November 12 and 20, membership organizations IFSWF and OPSWF organized their 12th and 3rd annual forums respectively, updating on progress made by existing members and welcoming several new funds. The former has lost momentum in the past few years, with founding members NBIM and Chile leaving the club, while the latter’s entry requirements are unclear as only a third of its members are signatories of PRI’s SDGs.

We have used our GSR Scoreboard to quantify the Governance and Sustainability of the various membership organizations. As highlighted below, the average of the “G-score” of IFSWF’s 40 members is 5.9, while the average of the 60 non-members (including PPFs) is 6.9. The score of certain founding members incl. KIA, LIA, NDFI, OIA and QIA is disappointing (1-4 out of 10) and some do not even publish an annual report yet. Endorsing the Santiago Principles is neither necessary nor sufficient for a SWF to be legitimate and transparent.

As per Sustainability, the initial members of OPSWF are an extreme mix, with NBIM and NZ Super driving average scores up. Half of the current members do not pass our “S-score” and the average is just in line with that of our Top 100. Other clubs such as ILN and SDI, which are PPF-driven, and PRI, which has more stringent conditions to join and to report activities on an annual basis, present much better average scores.

If greenwashing is the term for conveying a false impression about a company's environment efforts, we should also go beyond any membership or endorsement to assess and quantify the efforts of a SOI to be a responsible investor. There is certainly still much work to do on Governance, Sustainability and Resilience aspects, and we look forward to revisiting our GSR scores and seeing the progress done by the summer of 2021.

Complex Organizations

As highlighted in Section 4 of this report, the SOI industry has grown significantly in size, maturity and heterogeneity in the past 12 years, and we now need to pay attention to four additional aspects especially:

10.1. Mandate / Mission (SWFs):

The first few months of 2020 caused a general chaos in public finances across the world. Economic activity suddenly halted, and countries started asking themselves if they had enough savings to survive: Don’t we have a SWF that is supposed to help with this kind of situation? And if we don’t, shouldn’t we have one?

More interestingly, those countries with different investment and strategic vehicles started looking at what sort of assistance these could be bringing to the table. And this is where the taxonomy of SWFs (see page 7) becomes important. Stabilization funds are mandated to take the hit, i.e., to be an umbrella for those “rainy days” so they were used immediately to fund rescue packages. Savings funds were initially left, but some countries had little choice, and investors like NBIM and GIC suffered the largest withdrawals in their history.

However, development funds were left intact. They are initially not responsible for deficits and were free from any withdrawal (except for Angola’s FSDEA) but were heavily pressured to focus on domestic investments. For some of them such as TSFE and TVF this came naturally as they are devoted entirely to domestic investments, but some others such as Temasek and PIF had to help with the heavy lifting at home, too.

* To explain the withdrawal process in an overly simplistic manner, we could think of a Central Bank as your pocket money, of a Stabilization fund as your current account, of a Savings fund as your savings account and of a Development fund as your house. If your father (Ministry of Finance) asks you for some money for the household, you start with your pocket money. If it is not enough, you go to your current account – and even to your savings account. Selling the house should be your last resort.

10.2. Capital Structure (SWFs):

When the SWF term was coined in 2005, the industry was mostly comprised of Government vehicles that invested in bonds, stocks and LPs abroad, as they were not allowed to do so domestically. Much has changed since then, including the establishment of no less than 50 Development Funds. SDFs seek financial returns but also the development of the local economy, and they can serve as guarantee of bond issuances and catalyze FDI from foreign partners – which has become especially handy since the start of the pandemic.

In September, Dubai’s ICD sold a US$ 2 billion bond, six years after its first issuance in 2014. And it is a win-win: the country uses the stakes held by the SWF as collateral and alleviates some of the debt at national level, and the fund is rated at the Sovereign ceiling level, scoring some points for any potential partnership. However, and like everything related to debt, it works well until it doesn’t. The ramifications of Malaysia’s 1MDB are still unfolding, after it raised US$ 3.5 billion in state-guaranteed bonds and US$ 1 billion from IPIC.

Earlier this year, Mubadala had sold US$ 4 billion in three-tranche bonds. The Abu Dhabi fund has also been raising equity via Mubadala Capital, its fully owned GP that manages US$ 8 billion of owned and third-party capital through three different PE funds. Other SWF-sponsored GPs include India’s NIIF and Nigeria’s NSIA-NIF. Several other development funds are raising equity for their countries as a way of facilitating further FDI, in coordination (or not) with the national Investment Promotion Agencies (“IPAs”).

In November, Indonesia’s new SWF NIA (supposedly an LP) started an aggressive fundraising campaign that included approaches to Blackstone and Carlyle (supposedly GPs). We expect the lines between GPs and LPs to become increasingly blurry and expect a number of hybrid vehicles to emerge in the years to come.

The mechanisms to not only use but also source capital are now vast, and there must be continuous dialogue among a country’s various stakeholders and vehicles. Proper governance and agenda coordination will foster a successful stream of wealth being diversified overseas, as well as quality assets bringing capital home.

10.3. Investment Focus (SWFs & PPFs)

Gone are the days where SWFs were defined as Government-owned vehicles investing their capital overseas. Today the industry is much more complex, with mixed forms of legal structure, ownership and investment focus. Global SWF’s exhaustive research into the current portfolio of State-Owned Investors (SWFs & PPFs) has identified the percentage split between domestic and foreign assets and positions.

The world’s Top 10 SOIs redeploy on average a third of their resources into their hosting economy. Some are forbidden from investing domestically, e.g., NBIM, ADIA and GIC, which ensures they focus exclusively on overseas markets while their “sister funds” (Folketrygdfondet, Mubadala and Temasek, respectively) support the local economy. This is not the case with GPIF and NPS, which continue to focus heavily on Japanese and Korean bonds and stocks; with CIC and SAFE, which hold significant stakes in large Chinese SOEs; and to a lesser extent, with APG, HKMA and KIA, which hold minor domestic interests.

Beyond the Top 10, we find significant differences between PIF (80% in KSA), QIA (29% in Qatar), Future Fund (20% in Australia) and the Canadian PPFs (33% in Canada on average).

If we look at the year of the inception of the SOIs, the proportion of domestic assets held by funds created before 2000 is relatively low with an average of 34%. The allocation is far higher at 52% among funds set up after 2000 due to the prevalence of SDFs, which focus on domestic infrastructure and other industries.

As per their taxonomy, our analysis highlights the geographical mix of SOIs according to their mandate. While savings funds and stabilization funds are normally more interested in overseas markets (80% and 62% on average, respectively), development funds invest heavily in the country of origin (61%). Interestingly, public pension funds present a balanced portfolio (50%).

Lastly, we find interesting results when we look at the domestic portfolios of the funds according to their region of origin. European, Middle Eastern and Oceanian funds prefer overseas investments, while Asian and North American funds are more balanced. Interestingly, the extreme cases are in Latin America (all overseas) and in Sub-Saharan Africa (mostly domestic), which are regions that have less capital but that may see more funds being established in the next few years.

10.4. Organizational Structure (SWFs & PPFs):

Global SWF estimates that the Top 100 SOIs employ about 45,000 people that manage an aggregate of US$ 15.5 trillion in assets, i.e., an average of US$ 340 million per staff. But this ratio is highly variable among all funds, according to their mandate, liquidity, risk profile – and structure. Some like GPIF rely heavily on external managers for an almost fully liquid portfolio, with a ratio of US$ 11 billion / staff. Others like NZ Super have built strong internal teams despite a 78% liquid portfolio and a single office, with a ratio of US$ 0.2 billion / staff. In the span of four years, PIF managed to attract top talent to Riyadh and grew its staff count from 40 to 1,000.

Another key difference among SOIs is the willingness, or lack thereof, to open satellite offices. The representative offices have grown from 70 in 2015 to 148 today, with a significant presence in London (23 offices), NYC (20 offices) and Beijing (13), and with a tenth of all SOI staff located away from the funds’ HQs. The “Singaporean model” of opening offices everywhere with local people (Temasek, 14 offices; GIC, 10 offices) has been followed by some of the Canadian PPFs (CDPQ, 11 offices; OMERS, 11 offices; CPP, 9 offices). Some of the Middle Eastern funds are still behind, such as ADIA which has no significant office outside of Abu Dhabi, and so are other funds operating from remote locations such as Alaska PFC, BCI, Future Fund, NZ Super and PGGM.

Canada’s BCI is an interesting case. The fund has chosen not to open any office overseas and has all of its 550 staff based out of Victoria, presenting one of the highest ratios of AuM/staff among Canadian PPFs. However, it collaborates with AustralianSuper and OMERS in personnel exchange and it uses external parties to manage a 40% illiquid portfolio. In its annual report, BCI sheds light on its rationale by breaking down the costs of its internal employees (15 cents per $100 managed) vs external managers (64 cents per $100 managed).

In fact, SOIs can no longer be referred to as “dumb money”, nor can they be tricked by banks or asset managers into trades they do not fully understand (see LIA vs Goldman). In the past 12 years, most of them have become sophisticated institutional investors that rigorously examine strategy, allocation and risk.

In the next few years, we expect (i) an increase in the allocation to private markets; (ii) a rising willingness to insource talent and to manage the portfolios actively; and (iii) a refocus on Asia and other emerging markets as the economy recovers. These three factors will increase both headcount and the number of offices. However, SWFs and PPFs must be careful to ensure they grow in a sustainable manner, as their success will be ultimately measured not only on investment returns are but also on cost-efficiency.

State Investors 2030

The SOI industry is hard to predict due to economics and financial markets as well as geopolitics. However, we have attempted to project the assets under management and to understand some of the key trends and factors that will shape the industry in the next 10 years.

Some of the largest funds incl. NBIM, PIF, APG, GPIF, NPS and CPP have been bold enough to project their balance sheets to 2025, 2030, 2050 or even 2110 (GPIF is seeking to peak at US$ 4.6 trillion in year 2074). For the rest, we have relied on the average growth between 2008-2020 or on our own estimates.

The forecast model produces a stunning result: in the next ten years, SWFs will grow from US$ 9.1 trillion to US$ 15.8 trillion, and PPFs will rise at an even faster rate from US18.4 trillion to US$ 34.2 trillion. Altogether, the SOI sector is set to exceed US$ 50 trillion within a decade. This figure only considers the injections of capital and investment returns of existing players. We predict that there will be at least 500 SOIs by 2030 and some of them (see next page), if established, can also fuel growth and move the needle significantly.

During the next ten years, we expect to see a number of new Sovereign Wealth Funds being established out of three different situations:

  • Excess (commodities): The share of resource-sourced SWFs is decreasing rapidly, from 57% today. However, there could be new additions coming from Mozambique (gas), Congo (coltan) or New Caledonia (nickel).

  • Excess (reserves): According to IMF projections, only four of the top 10 countries by current account surplus in 2021-2025 have a major SWFs; the rest of them could set one up, including Germany, Japan and Taiwan.

  • Need (development): We expect the trend of setting “SWFs without Wealth” to become even more popular in the near future. Countries likely to consider such a fund include Romania, Bangladesh and South Africa.






AuM ($bn)




1 Japan GPIF 2006 Pension 1,592 1% 51% 80
2 Norway NBIM 1997 Savings 1,128 3% 0% 96
3 China CIC 2007 Savings* 1,046 29% 67% 60
4 China SAFE IC 1997 Stabilization*** 743 10% 74% 12
5 UAE – AD ADIA 1967 Savings 726 22% 0% 52
6 South Korea NPS 1988 Pension 663 12% 70% 76
7 Netherlands APG 1922 Pension 603 29% 6% 88
8 Kuwait KIA (GRF+FGF) 1953 Savings* 559 18% 5% 36
9 China – HK HKMA EF 1993 Stabilization*** 540 20% 13% 80
10 Singapore GIC 1981 Savings 488 20% 0% 60
11 Saudi Arabia SAMA RA 1952 Stabilization*** 448 0% 0% 12
12 USA – CA CalPERS 1932 Pension 403 20% 75% 84
13 China NSSF 2000 Pension 376 14% 90% 32
14 Saudi Arabia PIF 1971 Development 360 60% 80% 28
15 Qatar QIA (QH+QI) 2005 Savings* 345 41% 29% 32
16 Canada CPP 1997 Pension 341 48% 16% 88
17 UAE – D ICD 2006 Development 305 65% 49% 28
18 Netherlands PGGM 1969 Pension 282 17% 24% 84
19 USA – CA CalSTRS 1913 Pension 258 32% 67% 92
20 Canada – QC CDPQ 1965 Pension 244 36% 34% 92
21 Sweden AP1-7 2001 Pension 238 17% 25% 92
22 UAE – AD Mubadala 1984 Development 232 63% 47% 72
23 USA – NY NYSCRF 1983 Pension 226 25% 90% 92
24 Singapore Temasek 1974 Development 215 44% 24% 92
25 USA – FL SBA Florida 1943 Pension 213 26% 75% 68
26 Russia NWF 2008 Stabilization* 174 20% 83% 20
27 South Korea KIC 2005 Savings 157 15% 0% 60
28 Australia Future Fund 2006 Savings 150 35% 20% 100
29 Canada – ON OTPP 1917 Pension 149 52% 42% 84
30 Denmark ATP 1964 Pension 148 38% 56% 92
31 Australia AustralianSuper 1999 Pension 125 21% 28% 88
32 Canada – BC BCI 1999 Pension 121 41% 41% 88
33 Canada PSP 1999 Pension 120 49% 33% 88
34 South Africa PIC 2015 Pension** 106 6% 93% 76
35 Japan SoftBank IA 2017 Savings** 101 86% 0% 20
36 Australia QIC 1991 Savings** 93 34% 43% 68
37 Canada – AB AIMCo 1976 Pension 91 29% 34% 84
38 Canada – ON OMERS 1962 Pension 85 61% 35% 80
39 Global UNJSPF 1949 Pension 74 14% 55% 88
40 Canada – ON HOOPP 1960 Pension 72 27% 70% 76
41 Iran NDFI 2011 Development 68 82% 100% 20
42 Libya LIA 2006 Savings 67 44% 35% 4
43 USA – AK Alaska PFC 1976 Savings 65 33% 73% 68
44 UAE EIA 2007 Development 63 26% 99% 12
45 Kazakhstan Samruk Kazyna 2008 Development 62 62% 100% 56
46 Finland KEVA 1988 Pension 60 26% 18% 64
47 Kazakhstan NBK (NF+NIC) 2000 Stabilization*** 57 0% 5% 12
48 China Silk Road Fund 2014 Development** 54 94% 0% 32
49 Canada – ON IMCO 2016 Pension 54 40% 48% 68
50 USA – TX Texas PSF 1854 Savings 48 41% 83% 64
51 Brunei BIA 1983 Savings 45 18% 20% 4
52 Azerbaijan SOFAZ 1999 Stabilization 43 13% 25% 52
53 Australia VFMC 1994 Savings** 41 30% 54% 76
54 Denmark PensionDanmark 1993 Pension 40 25% 34% 92
55 France FRR 2001 Pension 38 5% 40% 76
56 UAE – D Dubai Holding 2004 Development 35 97% 98% 32
57 Turkey TVF 2017 Development 34 80% 100% 48
58 France Bpifrance 2008 Development 33 61% 100% 40
59 Malaysia Khazanah 1993 Development 33 50% 74% 48
60 Malaysia KWAP 2007 Pension 33 18% 12% 84
61 New Zealand NZ Super Fund 2001 Savings 31 22% 13% 96
62 Oman OIA 1980 Development 31 31% 51% 40
63 Russia RDIF 2011 Development 31 100% 96% 48
64 Global WB PF 1948 Pension 30 50% 50% 12
65 USA – NM New Mexico SIC 1958 Savings 29 29% 80% 44
66 Kuwait Wafra 1994 Savings** 24 55% 5% 32
67 Finland VER 1990 Pension 23 10% 28% 64
68 USA – WY WYO 1974 Savings 22 13% 90% 56
69 Chile Chile ESSF-PRF 2007 Stabilization* 21 0% 0% 64
70 USA – WV WVIMB 1997 Savings 21 32% 75% 56
71 Global AIIB 2016 Development** 20 100% 6% 76
72 Bahrain Mumtalakat 2006 Development 19 79% 62% 44
73 Timor-Leste PF 2005 Savings 18 4% 0% 60
74 Canada – ON OPTrust 1995 Pension 17 61% 28% 84
75 Global IDB Invest 2017 Development** 14 100% 0% 80
76 UAE – D Dubai World 2005 Development 13 100% 66% 16
77 Ireland ISIF 2014 Development 12 35% 100% 80
78 Egypt TSFE 2018 Development 11 23% 100% 20
79 Global IFC AMC 2009 Development** 10 100% 0% 72
80 China CADF 2007 Development 10 41% 0% 40
81 Global APICORP 1975 Development** 8 64% 9% 68
82 Mexico FMPED-FEIP 2000 Stabilization* 7 0% 0% 40
83 Trinidad & Tobago HSF 2000 Stabilization* 6 0% 0% 48
84 Botswana Pula Fund 1994 Stabilization 5 0% 0% 40
85 Angola FSDEA 2012 Development 5 22% 93% 24
86 India NIIF 2015 Development** 4 100% 100% 44
87 Italy CDP Equity 2011 Development 4 81% 100% 52
88 Nigeria NSIA 2011 Savings* 2 60% 80% 80
89 Morocco Ithmar Capital 2011 Development 2 52% 100% 20
90 Panama FAP 2012 Stabilization* 1 0% 0% 56
91 Vietnam SCIC 2006 Development 1 3% 100% 24
92 Spain COFIDES 1988 Development** 1 100% 5% 68
93 Gabon FGIS 2012 Development 1 100% 100% 24
94 Palestine Palestine 2003 Development 1 100% 100% 48
95 Cyprus NIF 2019 Savings 0.8 0% 0% 4
96 Rwanda Agaciro Fund 2012 Development 0.2 6% 100% 56
97 Mongolia FHF 2019 Savings 0.1 0% 0% 0
98 Nauru Trust Fund 2015 Savings 0.1 12% 0% 64
99 Guyana NRF 2019 Savings 0.1 0% 0% 20
100 Senegal FONSIS 2012 Development 0.1 100% 100% 48

Governance – 10 elements


1. Mission & vision Does the Fund clearly state its mission, objective or purpose?
2. Deposit & withdrawal rules Does the Fund clearly state how it is funded and possibly withdrawn?
3. External manager reputation Is there a robust process to select external managers, if any?
4. Internal & Ext. Governance Does the Fund provide clarity of its governance structure?
5. Investment strategy / criteria Is there clarity on what kind of assets the Fund seeks to invest in?

6. Structure / operational data

Does the Fund disclosed how it is structured as an organization?
7. Annual accounts audited Are the financial statements audited and in the public domain?
8. AuM figure public Does the Fund provide clarity on how much capital it manages?

9. Details of inv. portfolio

Does the Fund provide clarity on what assets it currently holds?
10. Annual vs LT return Is the most recent year’s return provided?

Sustainability – 10 elements


11. Ethical standards & policies Does the Fund have a code of conduct or conflict of interest policy?
12. Stewardship team in place Does the Fund employ a dedicated team for Responsible Investing?
13. Economic mission Does the Fund seek economic advancement?
14. Economic impact & measure Are ESG key metrics or figures provided?
15. ESG annual report Does the Fund produce an annual ESG report?
16. Refence to SDGs Is the Fund a UNPRI signatory member or does it promote SDGs?
17. Partnership & memberships Does the Fund collaborate with international investors or bodies?
18. Emerging markets/managers Does the Fund invest in emerging markets and/or managers?
19. Role in domestic economy Does the Fund invest in the domestic economy and businesses?
20. ESG risk management

Does the Fund accept and address climate change / ESG risks?

Resilience – 5 elements


21. Risk Management policy Does the Fund have a robust risk management framework in place?
22. Strategic asset allocation Is there proper thought behind the asset allocation of the Fund?
23. Policy for withdrawals

Is there a mechanism to avoid the depletion of the Fund in the LT?

24. BCM/Crisis teams in place Does the Fund employ a dedicated Operational Risk team?
25. Speed & Discipline Is the Fund generally well placed for its long-term survival?

Global SWF is a financial boutique that was launched in July 2018 to address a perceived lack of thorough coverage of State-Owned Investors (SOIs), including SWFs and PPFs, and to promote a better understanding of, and connectivity into and between global investors. The company leverages unique insights and connections built over the years and functions as a one-stop shop for some of the most common SOI-related services, including:

  • Consulting Services, helping governments establish or reformulate their investment and strategic funds.

  • Fundraising / M&A Services, assisting asset managers to raise capital from institutional investors.

  • Data Services, running the ultimate database of investment portfolios and execs at the world’s largest SOIs.