2023 Annual Report SOIs in a Multipolar World

2022 was one of the most difficult years for State-Owned Investors (SOIs) in recent history. It started with Russia’s military invasion of Ukraine, which boosted oil prices and drove inflation rates to levels not seen in 40 years. In response, interest rates were hiked, with central banks trying to cool down inflationary pressures. The year finished with what some may call the burst of the cryptocurrency frenzy. It represented the end of bull markets, which had rebounded quickly from Covid19, and most analysts agree that a recession is likely in 2023.

In fact, 2022 was the first year ever that Sovereign Wealth Funds (SWFs) shrank in value. The scale of the drop is debatable as most SWFs report with significant delays, if at all – but Global SWF estimates the impact totaled US$ 1 trillion. Similarly, Public Pension Funds (PPFs) have reduced their assets by US$ 1.3 trillion, with the subsequent worsening of funding ratios. These are paper losses and some of the funds will not see them realized in their role as long-term investors, but it is quite telling of the moment we are living.

The major challenge of 2022 was the simultaneous and significant (>10%) correction of bonds and stocks, which had not happened in 50 years. This was not a US-isolated event but was seen worldwide: of major indices, only FTSE100 managed to close the year in green. The global listed benchmarks for private markets also dropped significantly, with infrastructure and private credit being the most popular refuge. Lastly, hedge funds managed to avoid huge losses and gained some momentum as an asset class among sovereign investors.

In 2022, state-owned investors deployed more capital in fewer deals than in 2021. In fact, the reduction in Venture Capital and the increase of mega-deals meant that the average ticket of the year was US$ 0.35 billion, which had not been recorded in over five years. Compared to 2021, SWFs invested 38% more, with US$ 152.5 billion in 427 transactions; while PPFs invested 9% less, with US$ 108.6 billion in 320 deals.

GIC was once again the lead investor with US$ 40.3 billion deployed in 2022, 17% more than in 2021. The Singaporean SWF is often seen in some of the world’s largest deals, usually in conjunction with other SOIs and private equity firms, and with a slight bias towards European and North American businesses. Behind GIC, five Gulf funds confirmed their role as major global dealmakers: the three Abu Dhabi SWFs, plus PIF and QIA. The third major region for outbound capital was Canada, despite lower activity than in recent years.

The regional preferences of the Top 10 investors keep adapting to the new financial environment and geopolitics. Five of the funds invested more in North America, three focused on Europe, and only ADQ continued betting on emerging markets. Overall, only 20% of the capital went into developing economies.

In terms of industries, the activities of SOIs were a perfect reflection of the economic changes. Funds lost interest in healthcare, consumer, and technology (i.e., in venture capital), and grew their appetite for infrastructure (mostly transportation), energy, industrials and financials. Real estate remained constant.

The major story of the year is the re-emergence of mega-deals, defined as investments of US$ 1.0 billion or more. The average ticket size for SWFs increased to levels not seen since 2016, and there were a total of 60 mega-deals in 2022. Temasek’s Element Materials and GIC’s Store Capital are now #2 and #3 of all time.

State-Owned Investors also sustained significant divestment activity, especially in the UAE. DP World sold a third of Jebel Ali to international investors, Mubadala transferred 25% of OMV and Borealis to ADNOC, and ADQ sold 8.6% of TAQA to Multiply and ADPF. IPOs were also a great conduit for sales, as Middle East bourses gained in volume and transparency. Canadian funds also sold several high value assets.

Lastly, we saw different strategies when it came to public equities. Most sovereign investors sat on the significant losses and reduced their activity in the US markets. This was not the case of PIF, who demonstrated once again its bold strategy and bought US$ 7.6 billion worth of new shares in major corporations during Q2. NBIM, GIC and Temasek increased their portfolio in Indian equities; however, the activity and value of Chinese A shares denominated in RMB owned by sovereign investors decreased significantly during 2022.

Once again, the report looks forward by listing the major events of 2023, trying to predict what the year may look like for sovereign investors – as explained by Global SWF senior advisor Andrew Rozanov. In addition, we look at three major trends that may as well continue in 2023:

• The re-emergence of Gulf SWFs, as important financiers of Western assets, using QIA as a case study

• The balance between domestic and international investments for SOIs, using Temasek’s example

• The increasing activity of SOIs in renewable energy, using the case study of Abu Dhabi’s Masdar

As in previous years, we thought long and hard about the “2022 Fund of the Year” and decided that CDPQ was a worthy recipient of the award.  A truly global investor, the Québécois manager invests on behalf of several retirement schemes, insurance systems, and a SWF sourced from water royalties. We were delighted to present the award to its Chief Executive Officer, Charles Emond and to discuss with him the impact of the fund in the province’s development, its significant investment activity globally during 2022, and its future ambitions.

The “Asset Class of the Year” was not obvious this year, given the losses suffered by most portfolios. However, we saw an uptick in the interest and allocation of sovereign investors into hedge funds due to the simultaneous fall of both stocks and bonds and the needs to find diversification and uncorrelated strategies. Both SWFs and PPFs increased their allocation, and we estimate they hold US$ 0.5 trillion in hedge funds, i.e., a 25% of the total industry size. We study the case of ADIA, the world’s largest allocator to hedge funds.

For the “Region of the Year”, we look at countries or regions with increasing appeal as investment destinations for sovereign investors. After China & India (2020) and Australia (2021), this year we decided to go with Indonesia, which has seen an increasing flow of investors due to the country’s ongoing transformation and strong prospects. The analysis is supported by an extensive case study of the INA, which we believe will continue as the nation’s investment gatekeeper regardless of the results of the 2024 presidential elections.

The “Industry of the Year” was inevitably infrastructure, including energy-related assets. At a time of economic distress, heightened risk and energy transition, infrastructure assets are tangible, with long-term predictable cash flows, a residual value, and a great alignment with sovereign investors. We analyze the latest trends in transportation, energy, utilities, and other related sub-segments, and provide an overview of CPP Investments’ US$ 60 billion portfolio, one of the world’s largest in infrastructure and energy.

SOIs are often misunderstood and mixed up – so this year we also prepared a special section titled “Sovereign Investors: A Diverse Village” that seeks to analyze the relative importance of each of the regions and sub-sets of funds. We consider a 100-normalized sample, and look at various criteria including region, country, source of wealth, mission, wealth bracket, and age since establishment.

The document also explores organizational matters, including the following concepts:

• The establishment of new funds: in 2022, we saw four new SWFs being set up, and significant progress with 10 others that could join the club soon.

• The opening of new offices overseas: in 2022, sovereign investors opened 10 more offices overseas in four continents, and we could see at least six more been established during 2023; and

• The appointment of new CEOs: just like in 2021, we saw 21 CEOs been replaced or added to new funds. The developments in Kazakhstan and Kuwait are worrisome in terms of governance and stability.

Finally, we offer a revised set of projections for State-Owned Investors 2030, considering the bump in the road encountered by the industry this year. It is never easy to predict eight years down the road for an ever-changing industry like this, but we expect global AuM to reach US$ 37.2 trillion by 2025, and US$ 50.5 trillion by the end of the decade. PIF of Saudi Arabia may lead the ranking in 2030, with US$ 2 trillion of AuM.

The report finishes with some very rich appendices, including the latest ranking table for the Top 100 SWFs and the Top 100 PPF in terms of AuM and GSR scores; a summary of all the monthly newsletters issued this year to our clients and asset owners; and the series of “Top 50 Sovereign Investors” in all asset classes.

* Note: all case studies have been prepared based on publicly available information and/or Global SWF estimates only.

2022 has been a very challenging year for investors across the world due to geopolitics, high inflation, rising interest rates, and significantly negative returns in both stocks and bonds. It is the first year in history the size of the industry has shrunk. And yet, sovereign investors were able to deploy more capital than ever. The reason is the uptick in activity by SWFs, and more specifically, Gulf SWFs, pushed by oil prices; and the return of the mega-deals that were favored over venture capital in an attempt to deploy a lot of capital, very quickly.

• SWFs deployed an impressive US$ 152.5 billion (38% up from 2021) in 427 deals (16% down from 2021). It is the second most active year after 2014, fueled by the good prospects among Gulf SWFs for year-end capital injections. Seven of the Top 10 investors were SWFs, and the average ticket by SWFs increased significantly to US$ 357 million in 2022, helped by 41 mega-deals over US$ 1 billion each in value.

• PPFs were not as active as SWFs and decreased its investments in both value (-9%) and volume (-16%) when compared to 2021. As a result, the average deal ticket remained relatively stable at US$ 340 million. The “Maple 8”, i.e., the eight largest Canadian funds, were responsible for half of the investment deal value – and were active sellers throughout the year too, exiting assets worth over US$ 10 billion.

The two largest tickets of the year were paid by Singaporean investors Temasek and GIC. The former acquired UK testing company Element for US$ 7.0 billion in January, while the latter spent roughly the same amount in taking private American real estate investment trust (REIT) Store Capital alongside Oak Street in September. Both transactions are the second and third largest single tickets spent by a Sovereign Investor ever, just behind CIC’s US$ 13.7 billion acquisition of Logicor Europe from Blackstone in June 2017.

The year also saw significant collaboration among sovereign investors. ADIA and GIC continued their “evolving relationship” and co-invested in several assets including Zendesk (US), Taibang Biologic (China), Triveni Turbine (India) and Climate Technology (US). Other significant club deals included Direct Chassis (GIC, KIA, OMERS), and Haddington ESP (GIC, AIMCo, OTPP). The Singaporean SWF was everywhere and topped the ranking of top spenders, for fifth year in a row, with US$ 40.3 billion deployed in 73 different transactions.

The 2022 league table is led, once again, by GIC. The Singaporean SWF completed 73 deals for US$ 40.3 billion, 17% more than it did in 2021. Over half of that capital was invested in real estate, with a clear bias towards logistics. This was followed by industrials (11%), infrastructure (10%) and technology (9%). GIC continued to prefer developed markets, with over 69% of the capital deployed in Europe and North America.

Five out of the ten most active investors hail from the Middle East. Abu Dhabi investors are covering all bases with ADIA most active in North America, Mubadala investing more in Europe in 2022, and ADQ investing across emerging markets. Saudi Arabia’s PIF has been incredibly active both at home and overseas, and Qatar’s QIA is back at the leaderboard thanks to a very active year, as predicted by Global SWF last year.

An interesting analysis arises from splitting SOIs in three buckets – Canadian pension funds, Singaporean investors and sovereign funds of the Gulf Cooperation Council (GCC) – and analyzing their investment activity for the past five years. Canadian funds were largely dominant in 2018, 2019, and, notably, in 2021. However, GCC SWFs played an important role in 2020 during the Covid-19 pandemic and now again in 2022 during times of financial distress.  We analyze this in detail in pages 20 and 21 of this report.

The regional preference of the most active sovereign investors have changed slightly in 2022. Five of the funds invested mostly in North America: GIC, ADIA, PIF, CDPQ, and OTPP. Another group led by Temasek, Mubadala, and QIA have invested more in Europe in 2022. ADQ continues to be an emerging market story. And CPP had a very balanced year, with a slight preference over Europe and developing economies.

The overall balance between regions has remained constant with 80% in developed markets and only 20% in emerging markets, which is the lowest figure in the past six years. The big winner is Developed Asia-Pacific (especially, Australia), which now attracts a fifth of all capital invested by sovereign investors globally.

We can run a similar analysis in terms of industries, and how SOIs have changed their sectoral preferences in the past year. In this case, we analyze deal volume, as opposed to deal value, to avoid skewing the sample towards real estate and infrastructure, which normally involve much larger tickets.

The exercise sheds an important light on the activity of funds in 2022: infrastructure, energy, financials, and industrials have grown in interest, while healthcare, consumer and technology have lost momentum with the end of the pandemic and the recalibration of venture capital. Real estate has stayed constant at 20% of the total, with residential and office assets re-gaining some of the ground lost to logistics in the past few years.

Mega-Deals:

The significant increase in capital deployed by SWFs in 2022, despite the smaller number of deals, was mainly due to the return of mega-deals, i.e., investments over US$ 1.0 billion at a time and per fund.

In fact, of the Top 10 largest investments ever by SOIs, five took place this year and most of them in Europe and North America. In January, Temasek spent US$ 7.0 billion in buying out UK-based Element Materials from PE fund Bridgepoint. In May, CDP Equity spent US$ 4.4 billion in buying Autostrade per l’Italia along with Blackstone and Macquarie. And in September and November, GIC spent US$ 7.0 billion in US-based Store Capital with Oak St., and US$ 3.9 billion in Canadian Summit with Dream Industrial REIT, respectively.

The first target from outside of Europe or North America to join this ranking was Dubai’s free zone Jebel Ali, which attracted US$ 5 billion by CDPQ in June, and half of that capital from GOSI in December.

If financial markets continue to fall in 2023, it is likely that sovereign funds will keep “chasing elephants” as an effective way of meeting their capital allocation requirements, especially those from the Gulf that will have received large injections from oil revenues.

Divestments:

Sovereign investors continue to monetize both domestic and international assets seeking high returns and / or diversification. In 2022, we tracked over US$ 48 billion cashed in 60 exits, 33% up from 2021. The largest seller of the year was once again Mubadala, which continues to divest from oil and gas.

The scale and increase in divestments among SOIs can be also seen with Temasek: since 2008, the Singaporean entity has sold US$ 219 billion, compared to US$ 299 billion in investments.  However, fiscal year 2022 saw the largest gap between investments and divestments due to an uptick in capital deployment.

Among the largest exits of the year, there were several domestic IPOs and “lateral transfers”. In Abu Dhabi Inc, Mubadala transferred certain assets to ADNOC, including 25% of OMV and Borealis, which were originally pursued by ADNOC-JV IPIC; as well as Masdar’s renewable and hydrogen assets. ADQ sold 9% of TAQA to Multiply (also chaired by Sh. Tahnoon) and ADPF. The emirate’s finances are increasingly interlinked.

Other significant exits in 2022 included DP World’s divestment of 33% of Jebel Ali free zone to CDPQ and GOSI; the US$ 5.0 billion sale of LeasePlan to ALD, which was recently approved by the European Commission and involves several SOIs; and Temasek’s exit of AusNet, via Singapore Power. In September, CPP and OMERS sold 67% of Chicago Skyway after holding it for six years, at a 1.8x multiple-of-money.

Listed Equities:

In a year when global stocks markets plummeted more than 15%, some sovereign investors adopted a passive strategy of sitting on the paper losses and waiting for the storm to pass. Given the heterogeneity and opacity of the industry, it is difficult to generalize but we can point out some key developments and trends.

For example, Saudi Arabia’s PIF has been very active in US equities since the onset of the pandemic, when it invested US$ 7.7 billion in 23 stocks in energy, entertainment, and financial services. Most of these positions were sold down from within a year and the fund has followed a different strategy since then, by holding mainly ETFs, technology, and gaming stocks. Its largest public holding continues to be a 63% stake in Lucid Motors, which boosted the value of PIF’s US equity holdings when it went public in October 2021. The stock of the electronic vehicle manufacturer fell a -34% in 2022, which affected PIF’s portfolio. However, if we isolate the Lucid effect, we can see that the portfolio grew in 2022 due to an additional US$ 7.6 billion invested in Q2 in major corporations including the Big 4 Tech firms (Alphabet, Amazon, Microsoft, and Meta).

Other SOIs were more conservative. NBIM, which is one of the largest investors in US equities, saw its holdings reduced 7% to US$ 452 billion; CPP was 25% down; and Dutch pension manager APG, 34% down.

While US markets have plummeted, Middle East bourses went from strength to strength. In 2022, the Gulf saw over 50 IPOs raised more than US$ 20 billion, the highest ever if we remove Aramco’s listing in 2019.  Some of the largest listings, including DEWA in Dubai and Borouge in Abu Dhabi, attracted significant capital from SOIs. The region expects the IPO boom to continue in 2023 across Tadawul, ADX, and DFM exchanges.

Elsewhere in China and India, financial markets were also significantly challenged. The Hang Seng and Shanghai stock exchanges were down over -12% and SOIs saw their A shares holdings fall significantly. ADIA and NBIM are now the only sovereign investors with over US$ 1 billion in RMB-denominated shares. In India, major indexes NIFTY 50 and BSE SENSEX were among the few to have a positive performance in 2022, and investors including GIC, NBIM, and Temasek saw their portfolio of Indian equities rise by at least 18%.

Returns:

2022 has been one of the most difficult years for investors in history, as shown in the quarterly results below:

In the decade so far, there has not been a dull moment: a global pandemic, a gruesome war, inflation at 1980 levels, simultaneous fall of stocks and bonds – what could be next? Most analysts agree that the prospects for 2023 are worrying with the prospect of new recession and a delayed bounce-back in markets.

In the year ahead, two key geopolitical events may have a huge impact on global economy and finance. First, the war in Ukraine, which could take a huge toll in Europe’s economy and stability if it continues. Second is the reactivation of the Chinese economy and the political tensions with Taiwan. An escalation of geopolitical instability and of the decoupling with the US could have terrible consequences for everyone.

Sovereign investors will also continue to pay attention to national elections. Lula, who spent 1.5 years in prison for corruption, will again take office as President of Brazil on January 1, coinciding with the second pink tide (turn to the left) in Latin America. Paraguay may follow in April. Other countries with presidential elections include Nigeria in February, Turkey in June, Pakistan and Argentina in October, and Bangladesh and DRC in December. King Charles III will be officially coronated on May 6 at Westminster Abbey in London.

The global economy is projected to decelerate to 2.7% in 2023, and markets could keep falling. The magnitude of the 2022 burst in financial markets across the world is unlikely to be repeated, but the size of the through will depend on sustained inflation and rising interest rates. According to its latest projection, the Fed is expected to raise its key benchmark borrowing rate another 75bps, hitting a 17-year high of 5%-5.25% in 2023.

A lot of eyes will remain on the Middle East, even after the successful completion of the World Cup in Qatar. In October, the World Bank-IMF annual meeting will take place in Morocco after two years of postponements, Saudi will host once again FII after 6,000 people attended it in 2022, and the United Nations will take its annual event World Investment Forum to Abu Dhabi. The UAE will also host COP28 in December. Doha, Riyadh, and Abu Dhabi will likely continue benefitting from high oil prices and infrastructure projects.

Global events will put emerging markets in the spotlight, with sports being an increasing target for SOIs. On June 10, the football Champion’s League final will be held in Istanbul, a week before the country’s presidential elections. Between August 4 and 19, Accra will host the 13th African Games and the first ever African Para Games. And between August 25 and September 10, the basketball World Cup will be hosted for the second time in Asia, and for the first time by three different countries: Indonesia, the Philippines and Japan.

In terms of activity by sovereign investors, we expect 2023 to be a very busy year. There should be significant progress with SWFs that have been proposed and passed bills, namely in Mozambique, Papua New Guinea, and the Philippines – if an agreement is finally reached. We shall also see more of the superannuation consolidation Down Under, with the merger of Hostplus and Maritime Super scheduled for September.

We will see at least four new offices being opened in the next 12 months: Khazanah’s new post in New York, Temasek’s latest office in Paris, BCI’s added presence in London, and AIMCo’s new roots in Singapore. PIF may open a fourth and fifth post in Mainland China and India, once the recent offices of New York, London and Hong Kong have been fully staffed. It will be interesting to keep monitoring the debate between Hong Kong and Singapore and see whether CPP and PSP also decide to join the rest of their peers in the latter.

Investment activity will be more fluid and will depend on global developments. SOIs will need to mark down their portfolios of private markets before they can undertake any major change in allocation, and hedge funds may continue to benefit from the disruption of traditional markets. In terms of regions, we expect Asia in general and certain emerging countries to be of interest for sovereign investors, but the revaluation or further devaluation of the world’s currencies against the USD may affect the geographical allocation.

Finally, aggressive products like volatility trading (AIMCo) and crypto (CDPQ, Temasek, OTPP) have created some reputational damage recently, and we would expect SOIs to be extra-cautious with new or riskier strategies in the year ahead. This includes venture capital, which could stay low-key for another year.

Middle Eastern White Knights:

In the global context of geopolitical, economic, and financial uncertainty, Middle Eastern funds are shining more than ever. Most funds have shattered stereotypes of following hidden agendas and only hunting trophy assets and are now recognized as smart, flexible, and mature investors that can move the needle locally and overseas. The 40 Middle Eastern SOIs manage US$ 4.8 trillion in financial capital and 12,000 personnel in human capital.

In times of economic distress, including the 2008 global financial crisis, the 2015 oil price crash, the Covid-19 pandemic and the current liquidity squeeze, these vehicles have provided the necessary resilience others could not. For those SWFs that are not oil-based, including those in China, Singapore or Korea, the investment momentum is ominous. Even Norway’s NBIM, which could have offset the paper losses with the significant injections it received in 2022 from rising oil revenue, has been affected by currency losses.

However, the position and momentum of Middle Eastern SWFs, especially in the Gulf, is much better due to an average oil price of US$ 99 / barrel and to the peg of their currencies to the dollar. For those GCC economies with lower fiscal expenditure, this translates into large surpluses, which were transferred to some of the SWFs at year-end. Therefore, the large savings funds that are more liquid and internationally focused, including Abu Dhabi’s ADIA, Kuwait’s KIA and Qatar’s QIA, are set to receive significant inflows of capital.

At the same time, the strategic funds that have large portfolios of domestic assets, such as Mubadala and ADQ in Abu Dhabi, ICD in Dubai or Mumtalakat in Bahrain, do not expect any major capital injection, but will not endure such large losses either, because of the more limited exposure to traditional bonds and stocks. In summary, investors from the region will emerge even stronger from the current economic scenario.

In this context, Middle Eastern SWFs are readier than ever to shine. Overseas, they have more than doubled their investments in Western economies, including the US and Europe, from US$ 21.8 billion in 2021 to US$ 51.6 billion in 2022. Of the top 10 most active sovereign investors this year, five are from the Gulf region.

This means that Middle Eastern investors are driving forward with the pursuit of “cheap” assets in Europe (including the UK) and in the US, and with more limited competition coming from their international peers. While the push in 2008 was focused only on financial institutions (and was broader than just ME funds), today, it is Middle Eastern funds that are enjoying that privileged position to chase deals across all industries.

Of this year’s 60 mega-deals, i.e., tickets deployed by sovereign investors of US$ 1.0 billion or more, 26 were carried out by Middle Eastern SWFs, and 17 of them were in American or European assets. The largest commitment was made by ADIA, when it invested US$ 4.0 billion in Ardian’s fund ASF IX and US$ 2.0 billion for joint co-investments. This a reversed situation than in 2014, when the secondaries investor bought stakes worth US$ 2 billion from the SWF. Both firms share some investments including Italian healthcare software provider Dedalus, and ADIA is reportedly considering buying a stake in Ardian’s management company.

Buying into a PE management company is not new, as we began seeing it in 2007 with ADIA (Ares, Apollo), CIC (Blackstone), Dubai Holding (Och-Ziff), and Mubadala (Carlyle). The latter also bought a 5% stake into Silver Lake in 2021, and ADQ took over a slice in Vistria’s management company in 2022.

Several of these deals were co-investments with other SOIs and/or PE firms. These structures are not new either: the asset owner/s leverage the network and reach of the PE firm, while the GP can punch above its weight in the auction process.

In 2023 and beyond, Middle Eastern sovereign investors will likely continue to be very active in Europe and North America, where there will be plenty of opportunities to buy listed equities or direct stakes, to pursue co-investments or buy into PE firms, and to find distressed portfolios and special situations.

Domestic vs International Investments:

As discussed in detail on page 47, the number of strategic funds with a mission of attracting foreign investment and co-investing in the domestic economy is increasing significantly. At the same time, there are several SWFs that continue to be forbidden from investing at home. Therefore, one cannot undertake a proper analysis of trends about domestic vs international investments without excluding them.

If we consider only the “flexible funds” that can decide whether to invest domestically or internationally, we can see a very interesting trend as per the chart to the right: the Covid-19 pandemic saw them investing much more at home with up to 46% of the total capital. However, the trend has now reversed with this proportion falling to just 15% in 2022 with the rest invested overseas. Domestic bailouts have made room, once again, for opportunistic deals overseas.

The debate around investing domestically or internationally is at the heart of sovereign wealth funds, which used to be defined as “special investment funds created or owned by governments to hold foreign assets”. As we know, this is no longer the case, and the industry saw a variety of investment and strategic vehicles arise in recent years with the ability or duty to juggle domestic holdings with investments overseas.

The answer to this question is not universal as it depends on each economy’s capacity to absorb capital, other vehicles the government may own or manage, a country’s ability to attract FDI, the supply of investable opportunities, the strength and liquidity of the domestic stock markets, and the capabilities of investment teams and / or external managers, among other conditions. Of the industry’s global AuM of US$ 11.2 trillion, Global SWF estimates that 40%, i.e., US$ 4.6 trillion, is invested by SWFs within their respective economies.

The trend of rising domestic investments will likely be sustained for two reasons: (i) the emergence of new strategic funds with the mission to attract capital; and (ii) the increased activity of some of the existing funds. A good example is PIF, which reached US$ 620 billion in AuM as of March 31, 2022. The Saudi fund is sponsoring significantly large initiatives that have not yet been capitalized into its balance sheet. So, while the current portfolio is 29% international and the leadership is targeting to increase this percentage over time, the domestic giga-projects (e.g., US$ 500 billion NEOM) may offset that target if they are to remain under PIF.

The benefit of having regionally diversified strategic vehicles is clear but managing them may be more challenging than operating conventional institutional investors. Most SWFs today are not only asked to perform financially, but also to create jobs, to propel the domestic economy and to contribute to decarbonization goals. Job descriptions for investment managers will become more complicated with time.

Green Investing: Here to Stay:

Renewable energy is a highly attractive infrastructure sub-segment for SOIs, both offering the stable, inflation hedging qualities of infrastructure and supporting net zero objectives. Several governments have signed up to the Paris agreement on climate change and their SWFs are following suit. Pension funds are also reacting to policy holders’ demands for greater environmental sensitivity with several joining the Net Zero Asset Owners Alliance, described by UN Secretary António Guterres as the “gold standard for net zero commitments”.

The Alliance saw Gabon’s FGIS become its third SWF member, after Germany’s KENFO and NZ Super. Others including Norway’s NBIM and Saudi’s PIF have pledged to reach Net Zero goals without formally joining NZAOA. Several others have expressed their skepticism about reaching a net-zero economy under the current conditions. Singapore’s GIC for one has no plans to set a net-zero target, which it believes does not help in fighting climate change, and it prefers to invest in green tech and to support the transition of its energy assets.

Supply arises, capital follows

In 2022, SOI investment in renewables assets totaled US$ 18.7 billion, slightly behind 2021 figures.  If we isolate the US$ 6.0 billion commitment of ADQ and Samruk-Kazyna to build wind farms in Kazakhstan in 2021, this year would have been a record high for green investing. North America and Western Europe are the most popular destinations thanks to a high level of opportunity and a positive regulatory environment, as well as the FDI efforts in certain countries. In 2022, SOIs increased investment in European renewables by 45% to US$ 8.4 billion, while Developed Asia and Pacific investments more than doubled to US$ 4.7 billion.

Canadian funds were collectively the biggest source of capital, making up 33% of the total, while Gulf investors contributed 29% and Singapore 26% - altogether these three jurisdictions represented almost 90% of SOI renewables capital. The largest single investor in renewables this year was GIC, followed by Mubadala.

Europe’s dominance of SOI investment in renewables is explained by the more proactive approach by governments to meeting Paris-aligned net zero targets and, latterly, the strategic need to ween the region off Russian gas imports through greater self-sufficiency in electricity generation. In May 2022, the EU launched plans for a massive increase in solar and wind power that will require US$ 210 billion in the next five years.

European pension funds, particularly APG and PGGM, have also focused on deal origination in Europe. In mid-2022, the former teamed up with OMERS to acquire Groendus, a new leader in the Netherlands’ energy transition with 170 MW of solar capacity installed. Another European investor, NBIM, failed to keep up with its push for renewables, which it started in 2021 with a US$ 1.6 billion ticket in Danish windfarm Borssele.

Also in Europe, CPP ramped up its investments in Octopus Energy and committed over US$ 1.0 billion to its platform Renewable Power Capital. PIF and Mubadala also weighed in heavily into the European renewables sector in 2022, investing alongside GIP in Germany-based Skyborn Renewables, with 7 GW of capacity completed in offshore wind generation. Lastly, GIC made a significant investment with Carlyle in UK-based Eneus Energy, to support the company’s push to develop green ammonia projects using renewable energy.

Other developed markets also received significant capital in 2022. GIC made the year’s largest investment in Australia’s InterContinental Energy, which possesses a portfolio of 200 GW of onshore wind and solar capacity. OTPP committed a significant envelop to Macquarie-born new pipeline Corio Generation. And CDPQ invested US$ 0.5 billion in Japan’s Shizen Energy, which has 1 GW of capacity under development.

In contrast to Europe and Developed Asia-Pacific, direct investments in US renewables by SOIs slowed in 2022. The most significant investment was APG’s acquisition of a 49% equity stake in the US$ 1.2 billion Gemini Solar + Storage project near Las Vegas. President Joe Biden has made climate change a key theme of his presidency with greater opportunities in renewables, offering potentially higher rewards in an environment where carbon carries a penalty, and targeting US$ 2 trillion of investment during his first term in office.

The transition to low carbon energy sources is also at the top of the agenda of Gulf SWFs as they seek to diversify domestic and regional economies and gain exposure to progress towards the Paris Agreement’s net zero goals. One of the biggest draws is hydrogen production, particularly “green” hydrogen which offers a clean alternative to fossil fuels. During the COP27 Summit in Egypt, Oman’s OIA announced a US$ 1.5 billion acquisition of a 10% stake in the 1.1 GW Suez Wind Energy Project, overseen by Saudi’s ACWA Power. In Saudi, Thyssenkrupp is building a green hydrogen plant to help supply electricity to NEOM city giga-project.

Lastly, India remained the prime target of SOIs in emerging markets, despite being the world’s fourth biggest emitter after China, the US, and the EU. The country is a key target for CPP, which boosted its minority stake in solar and wind generator ReNew Power. Mubadala, together with Blackrock, outbid a consortium of CPP, Temasek and General Atlantic for a 10% stake in TATA Power Renewables. And OTPP acquired 30% of Mahindra Group’s platform of 1.54 GW of operational solar plants spread across several states in India.

GSR Scoreboard:

The GSR Scoreboard was first introduced by Global SWF in 2020 as an assessment tool for the best practices of state-owned investors, including sovereign wealth funds and public pension funds. We believe that important aspects such as transparency and accountability (Governance), responsible investing (Sustainability), and legitimacy and long-term survival (Resilience) are not mutually exclusive and must be considered jointly. 

The scoring is based on 25 different elements: 10 related to governance, 10 to sustainability, and five to resilience. These questions, which have not changed since 2020, are answered binarily (Yes/No) with equal weight based on publicly available information only, and then converted into % points. The system is rigorous, quantitative, and fully independent, as the funds in question do not pay any membership fee to be assessed.

This year we observed a considerable improvement: sovereign wealth funds raised the average score by 6%, and public pension funds, by 5%. The scoreboard was led by eight investors with a 96% score: three from North America (CPP, CDPQ, and BCI), two from Europe (PGGM, ISIF), one from Asia (Temasek) and two from Oceania (Future Fund and NZ Super Fund). Two regions saw several improvements: the Middle East, led by Qatar’s QIA, Abu Dhabi’s Mubadala, and Saudi’s PIF; and Sub-Saharan Africa, led by Angola’s FSDEA, Gabon’s FGIS and Senegal’s FONSIS. We had the chance of discussing the results with the CIO of CPP Investments and published the interview in our report, which can be accessed at https://globalswf.com/reports/2022gsr.

Despite the positive trajectory, resilience is still an evolving concept among certain state-owned investors, which have issues with liquidity and spending control. After the significant withdrawals motivated by Covid-19 and the subsequent recovery, some funds may struggle with the expected 2022-23 bearish markets. Our next assessment round will start in May 2023, and we will contact all 200 SOIs with the preliminary results.

Industry analysts and commentators usually group all Canadian Funds together. However, each of them has a distinct risk and investment profile. The Caisse de dépôt et placement du Québec (CDPQ) is unique in that it manages both public capital and pension contributions, and in that it juggles a dual mandate of achieving optimal financial returns as well as contributing to the economic development of the province of Québec.

CDPQ invests on behalf of 47 different depositor groups, although three quarters of its capital comes from three pension plans: Finances Québec, Retraite Québec and RREGOP. It also manages the monies of several insurance plans, including those in the healthcare and automobile sectors.

Québec presents the right ecosystem for CDPQ to thrive, with a diversified economy based on the services sector and abundant in natural resources. If it were a country, the Francophone province would be the world’s 42nd largest economy. At the same time, CDPQ has immensely benefitted Québec’s development over the years and plans to increase its investment footprint from today’s US$ 59 billion to US$ 74 billion (CAD$ 100 billion) by 2026.

La Caisse has grown its assets under management (AuM) non-stop for the past 15 years. That is, until 2022, when sovereign investors worldwide have endured significant (paper) losses, as reflected in page 17 of this report. Yet, the -7.9% reported by CDPQ for the first six months of the year outperformed its benchmark (-10.5%) and the average of State-Owned Investors around the world (-9.7%).

In fact, CDPQ has become one of the world’s most sizeable, active, and sophisticated global investors. In the past ten years, the fund has consistently been among the top 10 investors, and is also a frequent seller, identifying the right opportunities to monetize assets domestically and overseas. According to data compiled by Global SWF, CDPQ would have invested over US$ 10 billion in 2022 in private markets alone.

Lastly, the Québec fund has been a trailblazer when it comes to sustainability and has put its money where its mouth is. In 2018, it sent a strong message by directly tying employees’ variable compensation to the achievement of climate targets. In 2021, it renewed its climate ambitions with an aggressive set of objectives, and its President and CEO, Charles Emond, currently sits on the Steering Group of the UN-convened Net-Zero Asset Owner Alliance.

A Robust Platform with Dedicated Subsidiaries and Branches:

CDPQ has evolved significantly as an organization in the past decade. Just like its Canadian peers, it has a sound corporate governance model, with a Board of Directors of up to 15 members, two thirds of which must be independent. The fund is driven by the CEO and senior executives of the various investment units. In addition to the different asset classes, CDPQ has three subsidiaries with separate boards and directors:

• Ivanhoé Cambridge: US$ 52 billion real estate (equity) investor with a mixed portfolio across 15+ countries. It recently opened an office in Sydney.

• Otéra Capital: US$ 21 billion real estate (debt) investor with a portfolio in 37 areas of North America. Its 150+ staff sit in Montréal, Toronto, and New York. The latter was opened in June 2022 with a former exec of Related.

• CDPQ Infra: Chaired by CDPQ’s CEO, the infrastructure subsidiary acts as a principal owner and contractor for major projects and focuses on building sustainable transport infrastructure for communities like the REM light rail network in Montréal.

In addition, CDPQ itself employs 1,454 staff, 89% of whom sit in Canada and 162 overseas, in 9 different posts. São Paulo was the latest office to be opened in 2018, in order to co-manage the US$ 14 billion Latin American portfolio, along with Mexico City. Eduardo Farhat replaced Denis Jungerman as the head of Brazil in August 2022.

For its impact in the development of Québec, for its leadership among sovereign investors and public investors worldwide, for its significant investment activity during 2022, and, more broadly, for its contribution to the advancement of the industry, Global SWF believes that Caisse de dépôt et placement du Québec (CDPQ) is a worthy recipient of the 2022 Fund of the Year award. We were delighted to present the award to Charles Emond, its Chief Executive Officer, and to speak with him about the fund’s recent evolution and ambitions.

[GSWF] CDPQ was established 57 years ago to manage the province’s newly created retirement plan. How has the fund’s strategy changed and how will it continue to evolve in the years to come?

[CDPQ] La Caisse was created in 1965 at a time when Québec was expanding and has grown considerably since then, becoming Canada’s second largest public investor. One thing that characterizes us is our dual mandate: serving our 47 depositors and contributing to the province’s economic development. We can distinguish three buckets of evolution:

• Asset diversification into private markets, which we started in the 1970s, and infrastructure among others;

• Our global expansion in the last 10-15 years, with 75% invested out of Canada and 14 offices; and

• Sustainability efforts including climate strategy and objectives.

[GSWF] Québec is among the world’s Top 50 economies and outpaced other Canadian provinces in 2021. What role is CDPQ playing in the development and sustainability of such growth?

[CDPQ] Investing in Québec has always been our raison d’être and is not mutually exclusive with our overseas efforts. Our assets in Québec have usually performed very well because it is an ecosystem we know very well. Today, we have about US$ 59 billion invested in Québec across different asset classes, compared to the size of the economy of US$ 380 billion. Considering our depositors – which represent about 6 million Quebecers – we have a huge domestic impact and the good thing about Québec’s economy is that it is very well diversified, which plays to our strength as an investor and advisor.

[GSWF] Canadian Funds demonstrated their resilience in 2022, with investment returns better than their global peers – why do you think that is and what makes CDPQ successful?

[CDPQ] The Canadian model has done very well by applying strong governance criteria, the expansion into private markets and inflation-protected assets; and the ability to manage these assets internally. At CDPQ, we manage 85% of our portfolio internally, which allows us to manage the portfolio at a lower cost and play a more active role in the governance of our investments – including with operating partners who add value over the lifecycle of the investment – that can make an important difference to our performance.

[GSWF] CDPQ has raised over US$7 billion in debt in the past two years including green bonds. How important is to diversify your capital base and how much is coming from overseas?

[CDPQ] Maintaining good levels of liquidity has become very important, especially in the past 10 years. For us, raising debt is one tool among many of creating liquidity as well as a tool for portfolio construction. By issuing in various markets, from USD to Euro and CAD, it allows us to stay in the market, diversify our investor base and our funding sources. The quality of our assets, liquidity position result in a very strong credit profile, allowing us to maintain a AAA rating, which is very attractive in the market and represents great value for investors. In terms of who buys this debt, 75% is central banks and banks, with the balance distributed to asset managers and insurers. From a geographical standpoint, our investors come mainly from North America (45%), followed by EMEA (35%), Asia and Latin America (20%). As with our assets under management which are diversified across the world, we try to diversify and keep a broad investor base, but at the same time have a very conservative capital structure and maintain a senior debt leverage level below 10%.

[GSWF] CDPQ was especially active this 2022 – what transaction/s are you proudest of?

[CDPQ] We are proud of all our teams globally but there have been a few noteworthy investments this year, namely:

• Over 50 investments in Quebec-based companies, our local market;

• The acquisition of 22% of Jebel Ali Free Zone in the UAE for US$ 4.0 billion, which was a trophy asset and seeks to leverage our relationship with DP World and our growth across the Southeast Asia and East Africa regions;

• Our US$ 0.5 billion investment in Shizen Energy, which is a renewable energy leader and our first direct deal in Japan and seeks to dip our toes in the transition from fossil fuels to green energy in Asia;

• Ivanhoé Cambridge announcing a partnership – and two investments – with NVELOP to expand “Hub & Flow” in Germany for our European portfolio aimed at building a platform of logistics properties along key supply chains;

• Our fixed income team supporting KKR’s acquisition and the energy transition plan of France-based Albioma SA, representing the inaugural transaction for our CAD $10 billion transition envelope; and

• Our recent acquisition of 100% of Akiem, the leading provider of locomotive leasing services in Europe that is operating 75% of its fleet on electricity, which plays well into our decarbonization efforts.

[GSWF] Infrastructure is a huge asset class for CDPQ. Where do you see the best opportunities?

[CDPQ] Infrastructure has grown from 6% to 13% of our portfolio, and we expect to raise it to 16% by 2026. This means an extra allocation of US$ 18 billion in the next four years, though we may reduce North America in relative terms. Regarding sub-sectors, we are big into renewables and transportation, and we also like Telecom, and are finishing some parts of the REM (light-rail project) in Montreal. Our competitive edge in infrastructure is that we can go for large tickets where there is less competition, take control positions and do almost everything internally.

[GSWF] CDPQ’s portfolio is truly global – where do you see future growth? What is CDPQ Global’s role?

[CDPQ] Today, two thirds of our portfolio sit in North America and a potential tectonic shift would probably be for us increasing our weight in Asia, although that would depend on the asset classes. For example, in Private Credit there may be a push in the US and Europe. In Infrastructure, it could be all around the world including emerging markets, given our expertise. And in Real Estate it could be more granular including new cities in the US, in Japan or in Australia.

The idea with CDPQ Global was to make sure that we find the right partners and can also have an open dialogue with the regulatory authorities, governmental representatives, etc. In today’s environment, governmental affairs have become crucial. I am a big believer of having boots on the ground and having strong local representatives.

[GSWF] Can you walk us through your commitment to Indonesia’s INA and your international partnerships?

[CDPQ] Selecting the right partners when investing abroad is key to us as we benefit from their expertise, local networks and can come into big projects with more confidence and conviction. We signed an MoU with INA along with APG and a subsidiary of ADIA, which we thought was an ideal combination. We really like Indonesia; I had the chance of meeting with INA’s CEO when I was in that region recently, and we believe it is a country that offers a large pool of opportunities. The work is ongoing, and INA is looking at different opportunities that will also give us an edge on responsible investing.

[GSWF] CDPQ issued a very ambitious climate strategy in 2021 – how important is decarbonization for you?

[CDPQ] Decarbonization is now part of our culture and DNA, and we have made it our priority. Since 2017, we have set ambitious targets which we have exceeded, and in 2021, we raised the bar once more reducing carbon intensity. Today, for every dollar we own, we have 50% less of carbon intensity than we had five years ago. In terms of our portfolio, 80% of the US$ 304 billion are now low carbon emission assets. We are also investing in assets from heavy-emitting sectors as part our CAD$ 10 billion transition envelope, which is a great risk-return proposition for our clients. We have set very ambitious targets for 2025 and 2030 and we are one of the world’s only public investors (the first and the largest) to have compensation tied to carbon reduction targets since 2017.

[GSWF] CDPQ employs over 2,300 people in 11 countries – how do you expect these figures to grow?

[CDPQ] We have been growing at a pace of about 100 people a year for the past five or six years, which aligns with our growth in assets and objectives. However, our structure is quite lean, and our costs are quite low when compared to some of our peers. What keeps me awake at night is the battle for talent, which is real not only at CDPQ but all over the world. Ours is a very competitive market, but we believe our brand of constructive capital – which also appeals to the next generation – as well as our global mandate, makes us an attractive proposition. We deploy a lot of effort in this because if we don’t have people, we don’t have assets, and we don’t have returns.

An increasingly global and diversified portfolio:

CDPQ’s portfolio has changed significantly since 2016 as it evolves and matures as a global investor. On the one hand, the domestic portfolio was reduced to 26% of the total pie, to the benefit of US-based assets and securities. On the other hand, the weight of Listed Equities in the overall portfolio decreased in 13% to the benefit of Private Equity and Infrastructure. The resulting 44% in illiquid markets puts the Québec investor at similar levels as CPP and OTPP in Canada, and as Temasek and Mubadala internationally.

The trend may continue in that direction as CDPQ aims at increasing its infrastructure portfolio to 16% in the next four years, including additional efforts in emerging markets that may also change the geographical split. That said, the fund will continue to be a key domestic investor and aims to increase its Québec portfolio (most of the Canadian investments) from today’s US$ 59 billion to US$ 74 billion  (CAD$ 100 billion) by 2026.

A Busy Year:

CDPQ had a very strong 2022 in terms of deal activity. Some of the largest transactions recorded include:

A truly green investor:

CDPQ announced its first climate strategy in October 2017 in the wake of the Paris agreement. The document promised to factor in climate change in the investment decision process, a US$ 6 billion increase in low carbon investments up to 2020, and a 25% reduction in its carbon footprint by 2025. Months later, the variable component of the staff’s salary was linked to the achievement of climate targets, creating a direct incentive.

Looking to build on this experience to intensify its efforts in achieving a net-zero portfolio by 2050, the Canadian fund issued a revised climate strategy in September 2021.  The new policy builds on the previous two pillars and created two new goals: a US$ 7.4 billion decarbonization portfolio and an exit from oil production. The new targets are directly linked to UN’s Sustainable Development Goals #11 & #13 around Climate Action.

One of the main challenges in tracking green policies is the lack of clarity and transparency around key performance indicators. In the absence of regulatory pressures and internationally recognized structures, leading funds have adopted various formats and publish different metrics, which makes it difficult to evaluate different practices, complicates comparative analysis, and allows funds to publish the most flattering statistics.

However, CDPQ pursues a comprehensive reporting of its sustainability actions and produces regular reporting of its carbon footprint, which reveals the impact of its investments on the environment. Approximately 80% of the fund’s global portfolio are either low-intensity or carbon neutral (“green”) assets.

As a reflection of its efforts around Responsible Investing, our latest GSR Scoreboard, issued in July 2022, gave a perfect score of 10/10 to CDPQ in the Sustainability elements, which only 10% of the 200 State-Owned Investors achieved. The Québec fund was at the top of the general leaderboard with a 96% score, along with three other PPFs (CPP, BCI and PGGM), and four SWFs (ISIF, Temasek, Future Fund and NZ Super).

In a year when all major asset classes performed poorly, it is difficult to pick up the leading asset class in 2022. However, we saw an uptick in the interest and allocation of sovereign investors into hedge funds, and some of our conversations with SOIs have revolved around the same themes. Given the simultaneous fall of both stocks and bonds, asset owners are seeking diversification and uncorrelated strategies in hedge funds.

Sovereign investors use a variety of terms to define hedge fund investments, including “absolute returns”, “alternative assets”, “active global equities” or “public markets alternatives”, but they all refer to the same factor, which represents an important part of the portfolio mix. In 2022, the average allocation of sovereign investors to hedge funds reached an all-time high of 2.0%, up from 1.0% in 2009. Global SWF estimates that SWFs and PPFs hold about US$ 0.5 trillion in hedge funds, i.e., a 25% of the total industry size.

The largest allocators in absolute terms among SWFs are, by far, ADIA, CIC and KIA, representing almost half of all the capital allocated by all SWFs to hedge funds. The Abu Dhabi fund has been investing in the asset class since the 1980s and employs 50+ staff in the sector, plus the recently set up Quantitative R&D (“Q Team”) and subsidiary ADIA Labs, as highlighted in the case study. In relative terms, NZ Super (20% of total portfolio) and Future Fund (17%) are above the rest, and present levels like American endowment funds.

Public pension funds have traditionally been more conservative when it comes to hedge funds due to the public scrutiny. In 2016, several systems including CalPERS, NYCERS and ISBI decided to drop their absolute returns programs due to the “excessively high” management fees, compared to the produced returns. In its 2022 report, NYSCRF states that its target return for the asset class is 8.8% and the five-year annualized return was 6.9%. Despite that, it is still pushing for its actual HF allocation, at 2.1%, to reach its target of 3.0%. Today, the average allocation of PPFs is still lower than that among SWFs but also increased in 2022 to 1.6%.

Endowment funds continue to present much larger portfolios, in relative terms. Harvard MC, Columbia IMC, and UC Investments’ endowments allocate as much as 33% to hedge funds, and the average among the USA’s top 10 endowments is 25%. Yet, the US$ 18 billion portfolio held by Harvard MC is far from ADIA’s US$ 60 billion. Yale University, which became a role model when CIO David Swensen started investing in hedge funds, private equity, and venture capital in the 1990s, has decreased its allocation to 22%, i.e., US$ 6.7 billion.

Different strategies:

In terms of products, sovereign investors cover all well-known strategies, from diversifiers to return-enhancers. Macro strategies usually focus on Commodity Trading Advisors (CTAs), which SOIs are very comfortable with; active trading or currency plays, including discretionary. Other popular bets are equity-hedge (fundamental growth and value), event-driven (merger arbitrage, distress, etc.), and relative value.

There are vast differences across sovereign investors around the decision of managing the asset class internally or externally. For example, Future Fund and ADIA outsource most of the management, but Alaska PFC invests in the asset class almost entirely in-house. The benefits seem to be clear: in fiscal year 2022, New York Common paid US$ 172 million in management and incentive fees to hedge fund managers, including US$ 68 million to D.E. Shaw. That translates to 3.2% of the hedge fund portfolio of US$ 5.4 billion as of March 31.

Another challenge of the industry is finding reliable performance indicators. Two of the industry known providers, issue a range of metrics that differ significantly. In any case, the highest last-five-year return, +5.6%, was still significantly lower than S&P500 annualized return for the past five years, +7.4%.

While most SOIs seem to agree that private markets, including private equity and infrastructure, present great prospects for the next few years, there is no discernable consensus about the benefits of having part of the portfolio invested in hedge funds. However, if we continue to see falling markets for fixed and variable income in 2023, we will likely see an uptick of investors looking to diversify and seek refuge in HF.

With a population of 260 million, Indonesia is a rapidly developing market few can ignore. The economy grew at a rapid clip in recent years with GDP growth exceeding 5% in 2022. Robust private consumption, rising investment and double-digit export growth have supported the country’s ongoing transformation. Although there is no guarantee that the Southeast Asian behemoth will continue to shake off global market turmoil sparked by the energy price spike, for sovereign investors its prospects are bright, and its potential is huge.

Foreign SWFs and PPFs have emerged as the country’s leading financiers. Indonesia has attracted around US$ 15 billion in inward investment by overseas state-owned investors, spanning the full range of asset classes and market segments – from logistics real estate to oil fields, and from roads to e-commerce.

Before 2019, most of the SOI capital flow was in the oil, gas, and petrochemicals industries as Mubadala led efforts in offshore exploration, concentrated in the Andaman and West Sebuku blocks. Yet, attention quickly shifted to private equity and infrastructure as the government pushed for the expansion of transportation sector and for the development of the startup ecosystem.

Global SWF data finds that of the commitments from sovereign investors, 49% is in infrastructure with a further 42% in private equity and 10% in real estate. Within the private equity sector, US$ 2.0 billion was devoted to venture capital in Indonesia’s briskly rising number of startups in e-commerce and fintech, including the highly popular Tokopedia and Gojek (both now merged into GoTo), Traveloka and Bukalapak. The rest of the investment activity was in direct investment, channeled through private equity funds or in co-investments.

In terms of origin, Singapore’s Temasek represents 22% of the investment value, followed by its stablemate GIC with 9%, Abu Dhabi’s ADIA with 7%, Canada’s CDPQ with 6%, and Qatar’s QIA, Malaysia’s Khazanah, and China’s CIC, with 5% each. Yet, it is Indonesia’s own new strategic SWF, INA, that is driving investment, particularly in infrastructure and the green energy transition.

The Developing the Digital Economy:

Indonesia is a significant target for investment in the digital economy due to the size of the market, growth in e-commerce and its specific geographical features. The country’s digital economy was forecast to grow 22% to US$ 77 billion in 2022 and is set to rise to US$ 130 billion in 2025 and US$ 220-360 billion by 2030, according to the latest annual e-Economy Southeast Asia report by Google, Temasek and Bain & Co. E-commerce will be the main driver of growth, representing 68% of the growth in the digital economy in 2022-25.

The fixed line network is unable to keep up with the demand of country comprised of many islands and territories, so it is looking to expand and enhance mobile networks to support growing smartphone access to the Internet. While robust 4G networks have been established in Java, less populous islands of Sumatra and Kalimantan are now a significant focus to boost subscribers from rural areas.

The region’s fast-growing digital economy requires growth in telecommunications towers. ADIA invested US$ 0.5 billion to acquire a minority stake in the EdgePoint Infrastructure platform, which is acquiring, developing, and operating telecommunications towers and distributed antenna systems in Indonesia and Malaysia. Meanwhile, OTPP and Mubadala have sought to develop their exposure to data centers, with US$ 0.5 billion invested in Singapore-based Princeton Digital Group, which has built a portfolio of 18 data centers across China, Singapore, Indonesia, and India, and serves top hyperscalers, Internet, and cloud companies.

Indonesia has emerged as the chief target market for venture capital investment in Southeast Asia, particularly for funds that are chasing bigger returns and turning away from regulatory turmoil in Chinese markets.  Indonesia’s startups have drawn sovereign investors into the country with around US$ 2 billion, the majority funded by Singapore’s GIC and Temasek. However, it has not been plain sailing and Indonesia’s newly listed tech companies did not escape the rout that swept public markets throughout the world in 2022.

GIC, Temasek and SoftBank Vision Fund 1 (supported by PIF and Mubadala) were early backers of e-commerce startup GoTo. The company was formed in May 2021 from the merger of Gojek (a super app for deliveries, e-payments and video streaming) and Tokopedia (an e-commerce platform similar to Alibaba). GoTo’s IPO in April 2022 raised US$ 1.1 billion, helped along by a buoyant local bourse, in addition to the US$ 9 billion raised from an array of institutional investors ahead of the listing. However, by the end of the year, GoTo had lost around 70% of its initial US$ 28 billion value and had losses of US$ 1.3 billion in the first three quarters of the year. Its post-IPO stock selloff makes it the worst performer among 11 large tech and Internet stocks.

E-commerce company Bukalapak also provides a warning of the risks of emerging market startups. Backed by GIC in late-stage funding rounds, by end-2022 the company’s stock price was slashed by 70% from an initial valuation of US$6 billion since its Jakarta IPO in August 2021. The travails facing GoTo and Bukalapak are not unique to Indonesia, with other Southeast Asian tech companies also seeing their valuations fall in value since going public, such as Malaysian competitor Grab – backed by Temasek and Mubadala – which lost 69% of its initial valuation of about US$ 40 billion since its US listing in December 2021.

Nevertheless, Singaporean investors have sustained their Indonesian VC strategies, with an eye on the scale of Indonesia’s potential. In May 2022, GIC led a US$ 80 million Series C round for digital investment platform Bibit. In April, Temasek participated in a US$ 50 million Series B funding round for logistics startup Waresix. In July, Temasek also supported a US$ 25 million investment led by Carousell Group to acquire Laku6, an electronics e-commerce platform. And Vertex Ventures also participated in a US$ 14 million seed round for Pintarnya, a one-stop digital platform for blue-collar workers to find employment opportunities in Indonesia.

Indonesian fund INA also dipped its toe into e-commerce, by joining Blackrock and others in backing a US$ 300 million finance facility for online travel agent Traveloka in September. However, sovereign investors are looking beyond tech and logistics: in January, startup eFishery raised US$ 90 million in a Series C round led by Temasek to fund its scaling up of aquaculture into other markets; its products include software like eFarm and eFisheryKu, which let shrimp and fish farmers monitor their operations. Such developments support Singapore’s bid to bolster agtech in a bid to improve the self-sufficiency of the island economy.

Case Study #5: INA as conduit of capital

Indonesia is one of several emerging markets establishing strategic sovereign wealth funds to encourage co-investments – often with other SWFs – in critically important sectors. The Indonesian Government has been marketing the Indonesian Investment Authority (INA) very aggressively and has reportedly reached out to more than 100 different parties including sovereign wealth funds and public pension funds since it launched in February 2021. It is part of a new breed of “catalytic funds”, established with the aim of attracting foreign capital into the country (inbound), rather than investing national capital overseas (outbound).

The INA successfully closed its first US$ 15.5 billion tranche in December 2020 with commitments from the Indonesian government, the US International Development Finance Corporation, Japan Bank for International Cooperation, ADIA, APG, and CDPQ. The government has set a target for the INA to expand its assets to US$ 20 billion by attracting co-investors with transportation development a clear target in its sights.

Road infrastructure is a key focus for INA and its international partners, which signed an agreement in 2021 for a US$ 3.75 billion infrastructure platform to invest in toll roads. In April 2022, INA signed two agreements to invest in toll roads on the islands of Sumatra and Java worth more than US$ 2.7 billion. The toll-road platform falls under INA’s traditional infrastructure theme, along with a seaport facilities platform, which Dubai-based DP World committed to in October 2021; and an airports platform, which is investing in the expansion of Indonesia’s busiest airport, Soekarno-Hatta.

The INA is seeking to align transportation with its low carbon energy transition and launched a US$ 2.0 billion green fund initiative, which is part of a broader government strategy to position Indonesia as a major player in the electric vehicle (EV) market. Initially, it will focus on battery development and nickel mining to create the basis for a sustainable EV industry. The fund will include investment by CMB International (CMBI) and Contemporary Amperex Technology Ltd (CATL), a leading EV battery supplier to global auto majors.

The government is already supporting rapid EV adoption through cuts in taxes and duties on EVs and imports of equipment and parts to stimulate domestic manufacturing. The battery industry fits with President Jokowi’s policy of “downstreaming industry”, seeking to add value to natural resources. Indonesia holds 22% of the world’s nickel reserves and is set to become a heavyweight in global nickel production, supplying around 50% of the world’s refined nickel by 2030, according to INA.

The Indonesian SWF is planning to go beyond traditional infrastructure and has defined several other key sectors for the future, including healthcare, financial services, consumer, and tech – and it is succeeding in drawing partners in these sectors. The strategy is impressing many foreign partners beyond the initial capital commitment, with 2022 concluding with the signing of an investment framework agreement between the INA and the Danish government’s Investment Fund for Developing Countries (IFU) for up to US$ 0.5 billion in co-investments in renewable energy, water, waste management, and other circular opportunities. IFU and INA have the ambition to provide risk capital to green and sustainable projects in the range of US$ 100 million, respectively, with co-investors making up the remainder. The agreement with the Danish fund followed the US$ 2.8 billion investment framework agreement signed in July 2022 between the INA and China's Silk Road Fund, which is backed by SAFE and CIC. Its first deals came in November with the partners investing US$ 120 million in listed pharma company PT Kimia Farma Tbk and its PT Kimia Farma Apotek unit.

INA’s efforts to meet its ambitions have not been without problems. SoftBank’s decision in early 2022 to bail on Indonesia’s plans to build a new capital city, Nusantara, in East Kalimantan prompted the country’s sovereign wealth fund to turn to peers for investment in the US$ 32.5 billion giga-project, but no deals were signed in 2022. INA is the driving force behind the project to build Nusantara, a “carbon neutral and inclusive city” which is supposed to replace Jakarta as the administrative center of the world’s fourth most populous country. However, state funds are only expected to cover 20% of the cost, with reliance placed on institutional investors and foreign sovereign wealth funds.

In March 2022, the UAE reaffirmed its commitment to the project with its US$ 10 billion pledged investment. A portion of the funds are supposedly set to be allocated to the new capital with the rest invested in infrastructure, food security, logistics, healthcare, and the digital economy. Saudi Arabia's Crown Prince also reportedly expressed his interest in investing in Nusantara, leading to a potential capital infusion by PIF. INA is actively courting the Saudi fund to help boost the project, given the fund’s own domestic giga-projects. To revive interest, in October 2022 several investment incentives for foreign investors were introduced, including a tax holiday of up to 30 years and significant tax deductions for research and development. Yet, despite all this courtship, no foreign SWF had signed on the dotted line by end-2022.

Outlook

Indonesia’s regulatory landscape in 2023 is likely to become more conducive for foreign investment and fiscal sustainability, particularly in the drive to create a greener economy with reduced reliance on coal in the power sector. Under the so-called Just Energy Transition Partnership, several governments of developed economies have pledged to provide Indonesia with US$ 20 billion of funding for its green transition to raise the share of renewable energy in Indonesia’s power mix from 11% in 2021 to 34% by the end of the decade.

However, President Jokowi’s era is approaching its end with the completion of his second and final term, due to constitutional limitations. INA and the broader development of the Indonesian economy are strongly tied to his reforms and a successor may take the country in a different direction. President Jokowi has reportedly hinted that Ganjar Pranowo, the governor of Central Java, is his preferred choice as successor. The frontrunner in the opinion polls, Pranowo has previously advocated a more economic nationalist agenda which could make foreign investors more cautious about entering the market. Yet, whoever wins, there will be more policy continuity than any radical break, particularly in areas that yield net gains – and INA’s role as investment gatekeeper is likely to be upheld.

There are many factors counting in favor of sovereign fund investment in infrastructure at a time of both heightened risk and energy transition. Infrastructure is a tangible asset which retains a residual value, making it attractive at a time of economic distress. At the same time, it provides a predictable long-term cashflow that chimes with the inter-generational horizon of state-owned investors.

Regulated assets such as toll roads and utilities usually involve inflation-indexed increases in charges, which ensures a hedge against inflation – a particularly important factor at a time of heightened inflationary pressures. Digital infrastructure and telecommunications serve as the backbone of the digital economy, which is expanding rapidly. Meanwhile, renewables are heavily sought-after as SOIs seek to decarbonize their portfolios and achieve net zero goals, as well as taking advantage of state support for energy transition.

Infrastructure also allows state-owned investors an opportunity to add value to assets and expand portfolios. Unlike venture capital, infrastructure has a high barrier of entry that prevents competitors, giving its operators a monopolistic position in the market.

All these factors helped boost SOI infrastructure allocations in 2022, with a US$ 10 billion increase in transportation assets up to US$ 34.4 billion investment in 2022. This figure does not include Saudi Arabia latest carrier RIA, which is being developed by PIF with a staggering US$ 30 billion of planned investment, or the transfer of Etihad Aviation Group (estimated at US$ 2.5 billion) from the Government of Abu Dhabi to ADQ.

In energy, oil and gas infrastructure investment slumped while investments in renewable energy continued the strong trajectory of the past seven years. We expect these figures to keep rising significantly over the short- to medium-term as funds commit to ambitious green goals. Utilities had another strong year too, with several SOIs exchanging hands in some major assets like AusNet, TAQA and DEWA.

Lastly, sovereign investors were very active in telecom towers in both developed and emerging economies, with seven important investments during the year. The less active and staffed pension funds from North America and Europe sought exposure to the industry via external managers, committing large sums of capital to generic funds run by managers like Blackrock, Stonepeak, GIP, Macquarie, Brookfield, KKR or ISQ.

Transportation

SOI direct investment in transportation has averaged US$ 24.0 billion annually from 2018, but segment exposures, including maritime, air and land, change every year according to long-term potential for returns. If the pandemic demonstrated anything, it was the crucial importance of supply chains to the functioning of national and international markets, with transportation the glue that binds producers with consumers.

Interest in the aviation sector was revived in 2022 amid the lifting of lockdown restrictions as the global pandemic eased, leading to big ticket investments. Like Saudi Arabia with the new airline RIA under PIF, Abu Dhabi restructured the aviation sector under the auspices of ADQ, taking full control of Etihad Aviation Group, including Abu Dhabi Airports, Wizz Air Abu Dhabi and ADQ Aviation & Aerospace Services Company. ADQ also took a controlling stake in Abu Dhabi Aviation and merged the helicopter operator with its portfolio of engineering and aviation services firms creating a “globally competitive”, US$ 2.6 billion aviation business.

The focus on aviation is not simply a strategic concern of SWFs. Sydney Airport attracted US$ 5.2 billion from three Australian super funds – UniSuper, AustralianSuper and Australian Retirement Trust – as part of a US$ 16.0 billion take-over led by GIP and IFM. Meanwhile, CPP increased its stake in Aéroports de Paris, which operates Charles de Gaulle, Orly and Le Bourget airports, to 5.6%, worth US$ 0.7 billion.

Seaports received US$ 11.3 billion in SOI investment in 2022, most of which was invested by CDPQ and GOSI for a 32% stake in three assets in UAE owned by port operator DP World: Jebel Ali Port, Jebel Ali Free Zone and National Industries Park. India’s NIIF also forged a partnership with DP World, acquiring a 23% stake in Hindustan Ports Ltd (HPL) as part of the US$ 3.0 billion platform to invest in ports, terminals, and logistics businesses in India. HPL operates five terminals across the country representing a 20% market share.

Strategic goals drove port investment in the Red Sea, with ADQ subsidiary Abu Dhabi Ports throwing its backing behind a new US$ 4.0 billion port in Sudan, modelled after Jebel Ali. Further south, land-locked Ethiopia deployed its newly launched EIH to bolster energy security through the development of an oil storage facility in Djibouti’s Damerjog Industrial Park. Port development will continue to be a focal point for SWFs as they connect countries and regions to global markets with multiplier effects for industrial sectors.

Investment in roads continued to be dominated by emerging markets, where the sector will be a key driver of transport infrastructure development over the next decade. Indonesia’s INA scored the biggest investment with the toll roads on the islands of Sumatra and Java worth more than US$ 2.7 billion. The signings are INA’s first steps since forming a US$ 3.8 billion toll road fund in 2021 along with ADIA, APG, and CDPQ.

India has also demonstrated an enduring appeal for SOIs with a large pipeline of projects amid efforts to modernize highways and upgrade the quality of roads, and US$ 270 billion pledged by the government over the next five years as part of the country’s National Infrastructure Pipeline. In 2022, CPP (46% stake) and OMERS (22%) invested US$ 0.8 billion to support Indinfravit Trust take over certain toll roads from Brookfield. The manager currently holds 13 operational road concessions with about 5,000 km in five Indian states.

Energy:

Although energy prices spiked in 2022, SOI investment in oil and gas infrastructure declined. One key reason was their commitment to sustainability, but also the growing realization that despite short-term market trends there are long-term downsides to maintaining exposures to fossil fuels. Many PPFs and some SWFs have set ambitious net zero targets and some of them adopted plans for tighter environmental sustainability policies.

Investments in finite sources of energy fell below US$ 7.0 billion, just like 2021. The biggest deal involved the sale of a 60% stake in the UK’s National Grid gas transmission and metering business to BCI and Macquarie for US$ 7.6 billion. In another deal, AIMCo upped its stake in US business Howard Energy Partners, which owns and operates around 1,000km of natural gas pipelines. And on the mining side, OTPP invested US$ 112 million in BC-based KSM, seeking inflation protection, real returns, and cash flow diversification.

The rest of the capital invested in energy went to renewable sources, which has quickly eaten a large share of the pie since the start of the pandemic. In 2022, SOI investment in renewables assets totaled US$ 18.7 billion, slightly behind 2021 figures. SOIs increased investment in European renewables by 45% to US$ 8.4 billion, while Developed Asia and Pacific investments more than doubled to US$ 4.7 billion.

The largest investor in renewables was GIC with the year’s largest investment in Australia’s InterContinental Energy, which operates a portfolio of 200 GW of onshore wind and solar capacity. There were several high-profile deals in Europe, including: CPP‘s increased commitment via Renewable Power Capital; Mubadala and PIF investment in Skyborn Renewables, which operates 7 GW of capacity completed in offshore wind generation; and GIC’s acquisition of Eneus Energy, in its pursuit to develop green ammonia projects. Dutch pension fund APG was very active both at home, with its acquisition of Groendus along with OMERS, and overseas, with its US$ 1.2 billion investment in Gemini Solar + Storage project near Las Vegas.

Utilities:

SOI investment in utilities reached US$ 15 billion in 2022, just 7% down from 2021, and with a strong tilt towards electricity. As essential infrastructure, utilities have a captive market, but some segments offer considerable long-term growth potential particularly in emerging markets, with the digital economy and the need to align electricity transmission and supply to the development of renewables.

The largest deal of the year took place Down Under, with the US$ 12 billion acquisition of AusNet by an array of Canadian (HOOPP, IMCO, and PSP) and Australian (ART) funds, led by Brookfield. Serving 1.5 million customers in Victoria, AusNet is a leader in electricity distribution and transmission and gas distribution. The company is looking to enable renewable generation to support Victoria state to be a net zero economy by 2050.

Another big deal came with the IPO of the Dubai Electricity and Water Authority (DEWA), which raised US$ 6.1 billion from ADQ, EIA, and GIC, among others. The company is expected to capitalize on rising demand for electricity, water desalination and cooling systems as Dubai’s population swells. In September, ADQ sold 8.6% of utility conglomerate TAQA to other local investors including Multiply Group and ADPF.

Others:

“Others” consisted of investments in infrastructure funds and in telecom towers. The growth of the digital economy, particularly broadband cell networks to support the need for higher bandwidth and increased connectivity, requires the development of telecommunications infrastructure and sovereign investors are at the forefront of this growth. The largest deal of the year came from PIF, when it bought 60% of Zain’s tower business for US$ 0.6 billion. The transaction is set to help bolster the Saudi IT and communications ecosystem.

OMERS was also very active in this space, spending US$ 1.3 billion in two deals in Australia: a portfolio of 428 towers and 809 rooftops from TPG, and 100% of Stilmark Group, which operates 75 towers. The Australian assets are part of OMERS’s growing digital infrastructure platform, which also includes Germany’s Deutsche Glasfaser and France’s XP Fibre. Other significant deals in this sub-segment in 2022 included OTPP’s 70% stake in Spark TowerCo NZ, KIA’s 10% stake in Phoenix Tower and PIF’s investment in American Tower.

Outlook:

High inflation is driving investment into infrastructure. In the utilities sector, telcos are under pressure to shore up their balance sheets as rising interest rates increase costs, creating an incentive for disposals that could present further opportunities for acquisitions by SOIs. Similarly, in digital infrastructure, investors will be looking at businesses that align with long-term returns, technological change, and sustainability. Renewable energy is also poised to see another strong year of investment especially in Europe, which is most vulnerable to energy supply disruption and is pushing ahead with accelerated low carbon energy transition.

The main constraints to growth of the industry are cost pressures caused by inflation with material used in the renewables sector – from refined metals used in the manufacture of wind turbines to minerals used in utility-scale batteries – set to grow at a fast pace amid rapid growth in demand. The rush to ensure energy security and elevated energy prices will see more projects achieve final investment decision in 2023, presenting new opportunities for SOIs as backers. Yet, costs will be mitigated by reduced regulation and increased subsidies as governments seek to entice investors. While Europe is particularly disadvantaged, similar trends are seen in other markets, including energy-rich countries such as Saudi Arabia and Egypt where SOIs are playing a leading role in recycling fossil fuel income for solar generation.

Global SWF studies 455 State-Owned Investors (“SOIs”), including Sovereign Wealth Funds (“SWFs”) and Public Pension Funds (“PPFs”), which jointly manage US$ 32.4 trillion in assets. SWFs 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:

• 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. For this reason, they are usually highly liquid funds that allocate on average 90% of their capital into 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 more aggressively. They allocate an average of 22% to private markets, and with a combined AuM of US$ 6.9 trillion, they represent some of the largest investors in real estate, infrastructure and private equity. Examples include Abu Dhabi’s ADIA, Norway’s NBIM and Singapore’s GIC.

• SWF-Strategic Funds: these have been 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 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, despite the obvious differences in liability profile. Both groups keep similar 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 flexible in our definitions, which are driven by market interest. If we are too academic, e.g., using IMF’s definition of SWF, we risk leaving out some of the funds that we deem highly interesting, acquisitive and comparable to other SOIs, including India’s NIIF, Morocco’s Ithmar Capital or Singapore’s Temasek.

We also include certain Central Banks (“CBs”), for the portion that is investable, including China’s SAFE (Investment Company), Hong Kong’s HKMA (Exchange Fund), and Kazakhstan’s NBK (including NOF and NIC). We stopped covering SAMA when it changed name to SCB and adopted a less “SWF-like” strategy.

We must bear in mind that certain funds are asset managers that invest on behalf of asset owners, e.g., Australia’s TCorp manages a SWF (NGF) and several superannuation pools; Canada’s AIMCo manages a SWF (AHSTF) and different pension plans; and Netherlands’ APG invests on behalf of ABP and other pools.

Out of the 455 SOIs, we define a Top 200 list, which can be found in Appendix 1 and allows us to focus our efforts on the 100 most active SWFs and the 100 most active PPFs. This sample serves us as a fair representation of the heterogenous SOI universe. In 2022, we completed the additional coverage of Top 200.

Methodology:

All the data is proprietary and comes from public sources or estimated based on our knowledge and insights. Of the Top 200, only 10 funds do not report their AuM, including Abu Dhabi’s ADIA, Qatar’s QIA and Singapore’s GIC, and we maintain internal models to estimate the size based on allocation and investments.

As a policy, we do not like “n.a.” and always estimate figures based on our experience, if undeclared. We maintain a dynamic list of the funds’ allocations 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 markets and to certain public market activities that are sizable and long-term in nature.

Lastly, we are contemporaneous in our approach and report information the minute it happens. The present report, released on January 1, 2023, and collecting activity up to December 31, 2022, serves as a proof.

New and Proposed SWFs:

In the past few years, and especially since Covid-19, there has been growing debate around the role of SWFs. Some countries that have one or more existing vehicles have been assessing their use and even their mission, while governments without funds are examining whether to launch sovereign investment vehicles.

A total of 13 new SWFs were established in 2020-2022. Some like Azerbaijan’s AIH or Ethiopia’s EIH were conceived as umbrellas of some of their countries’ most important assets. Others like Cape Verde’s FSE and Namibia’s Welwitschia were designed as fiscal stabilization mechanisms. A third group including Israel’s Citizens’ Fund and Australia’s Victorian Future Fund were developed as savings tools. The latter will be invested by asset manager VFMC to offset the state’s debt, just like Québec’s and NSW’s Generations Funds.

There is also an increasing trend to set up SWFs at sub-national level, especially in those federations with self-governing states or provinces including the USA, Canada, Brazil, Nigeria, UAE, Malaysia and Australia. Brazil has established four regional funds since it closed federal FSB, and four of the ten proposed funds at global level that we may see get established in 2023 are being proposed by devolved state governments.

The latest country to join the SWF discussion is the Philippines, following the proposal to create the Maharlika Investment Fund. The initial idea was for the MIF to be seeded with the country’s two major PPFs, GSIS and SSS – however, that idea was promptly rejected. There is currently a heated debate between the ruling party and the opposition, which highlights the challenges of establishing a SWF in a democratic nation.

One of the alternative sources of wealth for SWFs is the Citizenship by Investment (CBI) programs. Several countries sell passports to individuals for a hefty sum, which are sometimes channeled to savings funds. This was pioneered by Malta’s NDSF and by several nations in the Caribbean including Antigua & Barbuda’s NDF, Grenada’s NTF, Dominica’s EDF and St Lucia’s NEF, and may be followed by St Kitts & Nevis next year. In some other cases, the programs have triggered further corruption: tiny archipelago Comoros became the first African country to launch a similar system in 2001, and the president in charge has just been sentenced to jail.

Lastly, the Australian superannuation industry continues its consolidation. In December, HESTA boosted its AuM to US$ 57 billion and its membership to 1 million following its acquisition of the smaller, 60-year-old Brisbane-based Mercy Super. Other deals are mergers of equals like the one that took place in February between QSuper and SunSuper in Queensland to form the US$ 148 billion Australian Retirement Trust (ART). The merger between Hostplus and Maritime Super is scheduled for September 2023.

As the definition of SWFs and State-Owned Investors becomes blurrier, we may see the pace of new vehicles arising around the world accelerate, and we may need to adjust our definitions accordingly.

New Offices:

The foreign offices of SOIs are the reflection of the broader relationships between both countries and sheds a light on the significance of current and future investments of the fund in that particular nation or region.

In 2022, we saw the opening of 10 foreign offices, by PIF (New York, London, Hong Kong), OTPP (San Francisco, Mumbai), GIC (Sydney), BCI (New York), CDPQ-Ivanhoé (Sydney), CDPQ-Otéra (New York), and ANIF (Abu Dhabi). In a post-pandemic and fragmented world, SOIs are finding it easier and more important to establish roots overseas and six offices are already planned for 2023: Temasek will open a third European office in Paris, PIF may open a fourth and fifth office in Mainland China and India, Khazanah will move its US office from San Francisco to New York, BCI will open in London, and AIMCo will open a post in Singapore.

The Lion City is rapidly absorbing the exodus of companies and professionals from Hong Kong and has become the third most popular financial center for sovereign investors, after London and New York City.

New CEOs:

2022 witnessed as many changes in leadership as 2021: a total of 21 CEOs changed at the world’s top sovereign investors. This represents a significant churn ratio at the top, which is not always a good thing. In the context of highly disrupted markets and economies, sovereign investors need stable leaders that can deliver.

Some of the changes were more voluntary than others. We wrote last year about Alaska PFC and the firing of Angela Rodell, who was finally replaced in October 2022 by Deven Mitchell, an executive with 30 years of state service and no prior investment experience. In March 2022, the CEO of Kazakhstan’s NIC was also replaced overnight without much explanation. In 2021, the country’s bigger SWF, Samruk-Kazyna, had witnessed a change of management and a huge restructuring that saw its personnel halved from 248 to 124.

But the biggest overhaul happened in Kuwait, where the change in Prime Minister in July accelerated changes at the country’s state bodies. Saleh Al Ateeqi, the head of KIO (KIA’s London office) was ousted days after the appointment, highlighting the struggle between those attempting to reform KIA and the fund’s “old guard”. Two months later, the country’s second largest investor, PIFSS, saw its highly reputed Director General and his four deputies been dismissed. The COO of the pension fund was appointed interim DG.

There were also some voluntary transitions, mostly in Europe. In Denmark, Bo Foged decided to leave ATP – in a perfect timing – to join Copenhagen Infrastructure Partners. In the Netherlands, Wim Hazeleger stepped down as the CEO of APG’s Asia-Pacific business. And in Spain, Rodrigo Madrazo left COFIDES to join Brussels-based development finance institution EDFI. Nine of the 21 changes were due to retirement, including NSIA’s Uche Orji, after 10 years at the helm, and  PSP’s Neil Cunningham, who gave way to CPP’s Deb Orida.

Lastly, there was some noise in the press around India’s NIIF, and Sujoy Bose, the fund’s first chief executive, may have informed the board in September that he would step down a few years before the end of his term. Unfortunately, he will not be the only CEO that changes in 2023.

We first issued our prediction for 2030 in our 2021 Annual Report, expecting the industry to reach US$ 50 trillion in AuM. Last year, we fine-tuned that figure to US$ 53.7 trillion by 2030 given the stock rally and subsequent growth in AuM that followed last year. We are now adjusting our “crystal ball” figure slightly down to US$ 50.5 trillion, including US$ 17.3 trillion in SWFs and US$ 33.2 trillion in PPFs by 2030.

This figure is based on individual projections for all the major funds. Some of them including NBIM, PIF, APG, GPIF, NPS, and CPP have been bold enough to project their balance sheets to 2025, 2030, 2050 and beyond (GPIF is now expecting to peak at US$ 3.6 trillion in year 2079). For the rest, we have relied on the average growth between 2014-2022 when we believed they made sense, or our estimates otherwise.

We are expecting SWFs to grow from our estimated US$ 10.6 trillion in 2022, to US$ 12.6 trillion by 2025, and to US$ 17.3 trillion by 2030. This will be growth in AuM but also new funds that may arise from excess revenues or the need for capital.

Public pension funds, on the other hand, will keep benefiting from consolidation and increasing contributions, and we expect them to grow from today’s US$ 20.8 trillion to US$ 24.6 trillion by 2025, and to US$ 33.2 trillion by 2030.

We foresee that there will be at least 500 SOIs by 2030 and some of them, if established, may become very significant and could contribute to the growth of the industry.

As last year, we have paid closed attention to the latest forecasts from the IMF, issued in October 2022. The significant current account balances expected of Germany (US$ 1.4 trillion), Japan (US$ 0.7 trillion), Taiwan (US$ 0.5 trillion) and Switzerland (US$ 0.3 trillion) during the period 2022-2027, suggest that these territories could consider the establishment of their own future generations fund.

Geopolitics will play an important role in SOIs’ activities. According to the WB and IMF projections, four of the top five world economies will be Asian by 2024: China, India, Japan, and Indonesia. The war in Ukraine and the tensions between US and China will determine the fate of the global political stability.

If sovereign investors continue to invest heavily in real assets and private markets, we may see new transformations and sub-segments arising in the next few years. We also expect private credit and hedge funds to gain a more significant allocation over the next few years, and some further downsizing of bonds portfolios.

Following the pandemic, strategic funds are moving from “forced investments” to “opportunistic investments”, so we may see a recalibration of the balance between domestic and foreign investments. In any case, we believe domestic mandates are here to stay and most of the funds that will join the universe of SWFs will have an important role at home. This will only contribute to the blurrier line between owners and managers.

The projections of the Top 15 largest sovereign investors have been adjusted to reflect the drop in value among the most liquid funds, including NBIM, GPIF, and FRTIB. With a lower capital base, some of these funds will need to catch up quickly with the most diversified funds. The four largest funds in the Middle East will likely continue in the Top 15 by 2030, when Saudi Arabia’s PIF may eventually lead the table with US$ 2 trillion.

Appendix 1: Table of Top 100 SWFs and Top 100 PPFs:

Table of Top 100 SWFs:

Table of Top 100 PPFs:

Appendix 2: Summary of 2022:

Breakthroughs:

We had a busy 2022 and have tried and stayed on top of all news. Our monthly newsletters are sent on the first day of the month to our clients and asset owners around the world to keep them updated. For example, we reported on all Russian holdings held by sovereign investors on March 1, a week after the military invasion began; we issued a special analysis on female leadership across the industry on April 1, weeks after Women’s Day; and we circulated the new funding ratios of pension plans across America on February 1.

We also reported on what we saw on the ground during our various roadshows, in the Middle East (Riyadh, Abu Dhabi, Doha and Tehran) on June 1; and in Southeast Asia (Singapore, KL, Jakarta) on October 1.

Technical Analyses:

Beyond covering the news, our mission is to produce in-depth research that can be easily digested by our readers. On May 1, we issued our annual update of 6-year average returns of SOIs; on June 1, we talked about the ideal size for a SWF and its relationship with the country’s GDP; on September 1, we analyzed the alpha achieved by sovereign investors across different asset classes; and on November 1, we tracked the changes in investment preferences by North American funds (SWFs, PPFs, EFs) in the past 15 years.

Interviews:

Lastly, we would not be doing our job right if we were not talking to the funds themselves. Throughout the year, we have had in-person private sessions with ADIA, ADIC, ADQ, Mubadala, EIA, ICD, PIF, QIA, LIA, TWF, FAP, FSDEA, GIC, Temasek, Khazanah, KWAP, and met representatives of BCI, OMERS, FGRF, Mumtalakat, SAFE, and Future Fund at various events. It was definitely a refreshing year after 2020 and 2021.

In addition, we kept our tradition of issuing an interview with an executive of a fund once a month. We have interviewed CEOs and CIOs of seven different sovereign wealth funds and five different public pension funds across all regions: North America (CPP, CalPERS), Europe (COFIDES, Growthfund), Middle East (Mubadala, PIFSS-Wafra, KIA, NDFI), Africa (EIH), Central Asia (ANIF) and Australia (VFMC, AusSuper). We also published an update of a Latin American fund, FAP, after a session with their Board on Sept 30 in Panama.

We look forward to many more meetings and interviews in 2023, and to tell you all about them.

Appendix 3: Top 50 SOIs Series:

Throughout 2022, we published a ranking of Top 50 sovereign investors in each of the major asset classes they invest in: Fixed Income & Treasuries (FIT), Public Equities (Eq), Real Estate (RE), Infrastructure (Infra), Private Equity (PE) and Hedge Funds (HF), and the sub-sets Venture Capital (VC) and Private Credit (PC).

The reason is that there is a variety of rankings out there we do not necessarily agree with, in terms of methodology, criteria or just estimates. For example, not many outlets list NBIM as the world’s largest Sovereign Investor in Real Estate, even though they own almost US$ 100 billion in the industry – whether public or private. Each of the tables includes a column for notes to specify what is considered and what is not.

We can consolidate all figures into the table below, breaking down SWFs and PPFs, per major region and asset class. Venture Capital and Private Credit are listed but not included in the totals as they are normally included in the PE and/or FIT allocations.

The resulting average allocations are quite different for both classes of investors: SWFs invest on average 74% in liquid markets and 26% in unlisted real assets and private equity; while PPFs invest 82% in liquid markets and only 18% in private markets. The figures for the pension funds have been adjusted to exclude the federal pension funds in the US, which manage US$ 5 trillion but are only allowed to invest in Treasuries by law.

This year has represented a great dislocation in asset allocation due to the fall in prices of both stocks and bonds, and we will keep monitoring how these figures change in the years to come.

Top 50 SOIs in Fixed Income & Treasuries (FIT):

Top 50 SOIs in Listed Equities (Eq):

Top 50 SOIs in Real Estate (RE):

Top 50 SOIs in Infrastructure (Infra):