We are delighted to present the 2023 GSR Scoreboard, the most comprehensive analysis on the Governance, Sustainability and Resilience (“GSR”) practices and efforts of the world’s major State-Owned Investors (“SOIs”), including Sovereign Wealth Funds (“SWFs”) and Public Pension Funds (“PPFs).
The assessment tool was first introduced by Global SWF in 2020 to jointly address important aspects such as transparency and accountability, impact and responsible investing, and legitimacy and long-term survival. Four years later, the system is embraced as a key metric among sovereign and pension funds globally.
The scorecard is designed to be fully independent (as we are not commissioned by anyone to do it), quantifiable (assessing progress over time), and objective (based only on publicly available information). The scoring is based on 25 different elements: 10 related to governance, 10 to sustainability, and five to resilience, which are answered binarily (Yes / No) with equal weight and then converted into percentage points.
The 2023 edition seeks relevance and continuity: there have been no changes to the elements, to the methodology, or to the universe of funds (100 SWFs and 100 PPFs), although we have assessed a total of 15 new funds that have been established recently or have gained importance or activity in the past 12 months. For example, we include for the first time three SWFs recently established in Namibia, Israel, and Hong Kong.
The preliminary results were sent on May 15 to all 200 funds, which were given six weeks to provide any comment or additional information. We were pleased to see an increasing level of engagement, and over 30% of all the funds reached out to us trying to understand the system better and to improve their scores.
The results of the 2023 GSR Scoreboard are remarkable. We have observed a very significant increase in the overall score across funds from 59% in 2022 to 63% this year. The improvement has been most apparent among sovereign funds, which are catching up quickly with pension funds; and around sustainability, as funds are increasing their impact activities and reporting them in a regular and meaningful way.
The regional diversity of the leaderboard is testament to the fairness of the assessment tool. The GSR Scoreboard is a great equalizer and sovereign investors demonstrate that best practices are not only found in Western markets and among the largest institutions.
The overall ranking is led by Temasek, the largest investor among those achieving a 100% score. Almost 50 years old, the Singaporean entity is highly regarded, sought after, and used as a model by governments across the world, and we are delighted to showcase their success in an extensive feature and interview on pages 20-25 of this report.
Together with the Asian investor, there are three other funds with full marks: CDPQ, which was the recipient of Global SWF’s 2022 Fund of the Year award; NZ Super, which reported the best financial performance in the past decade; and NSIA, which has been an example of good governance, sustainability, and resilience since it replaced ECA in 2012.
Following the leaders is a group of eight high-scoring institutions: two from North America (CPP, BCI), three from Europe (PGGM, ISIF, COFIDES), one from Asia (GPF), and two from Australia (Future Fund and Aware Super). The presence of a Nigerian SWF and a Thai pension fund in the leaderboard demonstrates that high scores – and best practices – can be achieved in very different contexts.
Sovereign wealth funds continue to improve their best practices: when we first completed this exercise in 2020, the average score of SWFs globally was 46% – today it is 55%, even with the entry of new funds that usually present worse results at inception. Sovereigns are improving their disclosure and their “G” element has risen dramatically. Despite the improvement, they are still failing the “S” and “R” elements with 4.9/10 and 2.1/5 respectively, but we believe this will change in the next few years as funds keep maturing.
Public pension funds continue to display better marks than sovereigns across the board. This year we have witnessed an amazing push for sustainability, with many pension funds issuing their first responsible investing reports and providing more information around ESG key metrics. The improvement in resilience was much more modest, given the performance of the 2022 financial markets that affected funding ratios greatly. We would expect their “R” element to improve in the short-term, as stronger policies bear fruit.
The scenario in which State-Owned Investors are operating as of June 30, 2023 is quite different than what it was at 2022 year-end. Financial markets have recovered some of the lost ground, and the world’s 13 largest indices are up on average +10.8% this year so far.
And it is not only listed equities – in public markets, bonds are up +3.1%, and hedge funds are up +2.0%. Measuring private markets is always trickier as it depends on how often investors value their portfolios, but the related benchmarks have also been positive with +8.6% for private equities. Real estate and infrastructure, on the other hand, are almost flat when compared to December 31, 2022.
The world’s largest economy, the USA, saw a +1.3% increase in real GDP in the first quarter of 2023, down from +2.6% in the fourth quarter of 2022. Importantly for investors, the US inflation rate has come down from 9.1% (highest level since 1981) to 4.0% in the past 12 months, thanks to an aggressive interest rate hike to 5.1% by the Fed. The war in Ukraine is still ongoing, which keeps commodity prices relatively elevated.
The average price per barrel of Brent oil during the first half of 2023 was US$ 80, which, even if lower than the US$ 99 in 2022, is still advantageous for those SWFs hailing from commodity-rich economies. The latest breakeven prices forecasted by the IMF show that Qatar and the UAE will enjoy the largest windfalls this year, while Saudi, Kuwait and Oman will run modest surpluses, and Bahrain will still bear a significant deficit.
In the meantime, the tensions between the US and China are becoming increasingly apparent and several SOIs, including Canadian funds, have stopped their China investment programs and offices altogether.
In this context, sovereign investors suffered very significant losses in calendar year 2022. We offered an estimate and trailing numbers in our 2023 Annual Report issued on Jan 1, and are now in position of sharing the final numbers as reported by most funds. The average return for sovereign investors in CY22 was -8.0%.
That said, some of these institutions are recovering well in 2023, and Q1 returns have been quite positive so far, e.g., NBIM (+5.9%), NZ Super (+5.2), CPP (+3.6%), Future Fund (+3.4%) and Alaska PFC (+2.6%). We expect Q2 returns to be equally positive, given the returns of the benchmarks reflected on page 6.
The significant losses endured by sovereign and pension funds during 2022 meant that, for the very first time in history, their assets under management (AuM) decreased year-on-year. However, the fall of SWFs was partly cushioned by the windfall received by some of the oil-fueled institutions. Together with the recovery in financial markets, Global SWF estimates that as of June 30, 2023, the AuM of SWFs is back at 2021 levels, and will be assisted further by the newly established SWFs reflected on page 9. On the contrary, pension funds are recovering at a slower pace and prospects are slightly more negative for the second half of 2023.
The investment activity of the first half of 2023 shows the concerns and caution of SWFs and PPFs in the current macro and geopolitical environment. Sovereign Investors deployed US$ 106.8 billion, exactly the same than in the second half of 2022, but only in 270 deals. Investments are fewer, but larger on average.
As sovereign investors shy away from venture capital and smaller commitments, some of the key trends we have observed for the past year or so are the renewed interest in hedge funds as an uncorrelated strategy, and a peak in the commitments and direct investments in private markets, especially in private credit.
The pressure on achieving sustainability goals at organization level is also having an impact in the investment preferences of sovereign investors. In 2021 and 2022, we saw for the first time investments in “green assets” (mostly renewable energy) beating investments in “black assets” (mostly, oil and gas and mining). This trend has stayed the same during the first half of 2023, which saw significant activity. Some of the largest deals included GIC’s and Temasek’s investment in Australia’s energy retailer Origin, Saudi NDF’s investment in the world’s largest green hydrogen production facility, Mubadala Capital’s commitment to renewable fuel in Brazil, and NBIM’s acquisition of a 49% stake in Iberdrola’s Spanish renewables portfolio.
Apart from returns, changes in AuM, and investments, there have been other activities worth mentioning including the establishment of new sovereign funds and offices all around the world:
Besides new SWFs and offices, Sovereign Investors continue to have a significant churn ratio at the leadership level. During the first six months of the year we have seen 13 changes in CEOs, as follows:
In this fourth edition of the GSR Scoreboard, we rate 200 SOIs hailing from 81 different countries. By consolidating the data at national level, we can look at the countries that run their funds in the best manner.
The top tier list, with a GSR of over 66% (depicted in blue in the map of pages 8-9), includes countries in the Americas (Canada, Panama, Brazil), Europe (Spain, Ireland, Luxembourg, Sweden, Norway, the Netherlands, Denmark, France, Greece, Germany, the UK, Finland, and Switzerland), Middle East (Turkey, Palestine), Africa (Angola, Nigeria, Senegal and South Africa), and Developed Asia & Pacific (New Zealand, Australia, Thailand, South Korea, Singapore, and Taiwan). The elite club does not include the USA, which falls short in both sustainability and resilience, Belgium, Italy, or Japan.
We tested the relevance and correlation between the national-level GSR scores and the credit ratings for the sovereign debt, as measured by the three top agencies: Standard & Poor’s, Moody’s, and Fitch.
The ratings are converted into numbers and averaged for all countries. Ten territories are not rated by any agency: Palestine, Nauru, Libya, Iran, Timor-Leste, Guyana, Kiribati, Djibouti, Monaco, and Brunei.
The resulting list of numeric ratings indicates a moderate positive linear relationship between the GSR scores and the average credit ratings, at 0.45.
Corruption Perceptions Index (CPI):
Transparency International (a German non-profit founded in 1993 by former employees of the World Bank) publishes an annual index that ranks 180 countries and territories according to the perceived levels of their public sector corruption.
From our sample, five territories are not rated by the CPI: Palestine, Nauru, Kiribati, Monaco and Brunei. The correlation with the GSR is slightly stronger at 0.51.
Freedom House (FH) Index:
Freedom House (a DC-based non-profit founded in 1941) monitors the state of freedom and democracy around the world and rates people’s access to political rights and civil liberties in 210 territories annually.
This is the most comprehensive index, and it rates all 81 countries in our study. However, the correlation with the GSR is lower at 0.30.
Countries with several funds are more likely to be in the middle of the table, as not all of them are managed in the same manner, especially when SWFs are mixed with PPFs.
The bottom part of the table includes countries that have in our sample only one sovereign investor, which has performed poorly. Some of them include recently created funds such as Namibia’s Welwitschia Fund, Djibouti’s FSD, and Cyprus’ NIF, and others are stabilization funds with very little information, such as Botswana’s Pula, Peru’s FEF, and Mongolia’s FHF-FSF.
The exception to this rule is Russia. The two Russian SWFs have found themselves subject to strong sanctions, which has affected their transparency and operations. NWF has resumed publishing its monthly stats through the Ministry of Finance, but RDIF has now limited the information available in its website and is no longer a member of the IFSWF for Santiago Principles.
Natural Resources Governance Institute (NRGI) Index:
NRGI is a NY-based non-profit established in 2013 through the merger of the Revenue Watch Institute and the Natural Resource Charter, which looks at whether countries rich in natural resources (O&G and mining) promote good governance and a sustainable and inclusive development. NRGI’s index assigns a score per nation; and there are 41 countries with both an NRGI index and a GSR score, and the correlation between those two parameters is the lowest one, at 0.20.
A low correlation of a GSR score with these indices can be actually good news as it signals the ability of investment institutions – such as Nigeria’s NSIA and Thailand’s GPF – to thrive in challenging environments.
This year we analyze the results geographically, by illustrating the position of 10 major funds per region:
North America (45 funds, 71% average score):
Canadian pension funds are generally better than their US peers when it comes to GSR overall scores (87% vs 65% in 2023). US retirement systems maintain high levels of governance and transparency; however, responsible investing has not been a priority, and most pension systems are significantly underfunded. The exception, as shown on page 30, is NYS CRF, which is fully funded and has a score of 88%, similar to PSP in Canada. The “Maple 8” are best in class and had a remarkable average GSR of 93% in 2023, led by CDPQ. The inclusion of more US funds in the past two exercises has driven down the overall performance of North American funds from 75% in 2021 to 71% in 2023, and it is difficult to see how this may change in the next few years, unless improved returns in the financial markets push the assets valuations back up.
Europe (43 funds, 72% average score):
In Europe there is a high disparity in results given the heterogeneity of countries, types of SWFs and pension systems. Among sovereign funds, best practices are found in Ireland (ISIF), Spain (COFIDES) and France (Bpifrance), three strategic funds that need good scores in front of their potential partners. Norway's NBIM, considered the pinnacle of transparency in the industry, is slightly penalized for not having a domestic agenda, which its sister organization FTF looks after. European pension funds maintain an impressive 86% average score (much higher than those in the US) and are led by the Netherlands (PGGM, APG), Sweden (AP-Fonden, Alecta), and Denmark (PFA, PensionDanmark). Overall, the average score of the state-owned investors in the continent, including the UK, has increased from 67% in 2021 to 72% in 2023.
Asia (42 funds, 55% average score):
We have witnessed a great improvement among Asian investors in the past three years, from 47% in 2020 to 55% today. The change is more noticeable in governance, where some funds are becoming more transparent and engaging; and in sustainability, where some funds are publishing their first annual ESG reports. Temasek leads the charge this year with a perfect score, followed by Thailand’s GPF, Japan’s GPIF (which is as transparent as Norway) and both Korean funds, KIC and NPS. The rest of Asia is quite diverse, with some strategic funds such as India’s NIIF and Indonesia’s INA remaining quite open and sustainability-driven as they attract capital to their respective nations, and some savings funds such as China’s SAFE Investment Company (and its subsidiaries), Kazakhstan’s NIC and Brunei’s BIA keeping their disclosure levels to the minimum.
MENA (29 funds, 52% average score):
Middle Eastern funds experienced the best improvement of GSR scores globally, from 32% in 2020 to 52% in 2023, despite the recent addition of some smaller funds. Institutions like Saudi’s PIF, Abu Dhabi’s Mubadala and ADQ, Qatar’s QIA, and Bahrain’s Mumtalakat have embraced the rating tool and taken the opportunity to improve practices and achieve a stronger alignment with international standards. Others, like ADIA and KIA, continue not to engage and have stayed with the same scores, 56% and 48%, respectively.
Oceania (17 funds, 78% average score):
Oceania is, once again, the region with the highest average score: 78%. Superannuation funds, including SWFs designed to complement such schemes such as NZ Super and Future Fund, are very active and successful investors that maintain robust governance and resilience. Among state-level managers, Victoria’s VFMC (VFF, ESSSuper) is well ahead of New South Wales’ TCorp (NGF, StateSuper) and Queensland’s QIC. The consolidation of the industry (ART, Aware Super) will continue to create larger funds with better GSR scores.
Sub-Saharan Africa (14 funds, 54% average score):
Sub-Saharan African funds are also getting much better at governance, sustainability, and resilience. Nigeria’s NSIA achieved a perfect score in 2023 thanks to its recently published and very detailed impact reporting. South Africa’s PIC (manager of pension scheme GEPF) and Angola’s FSDEA are great examples of funds that have endured serious challenges but are today in better shape. The rest of the continent is a mix, and funds will need to offer stronger assurances to attract more foreign investment to their economies.
Latin America (10 funds, 46% average score):
Lastly, Latin America continues to be the worst region in terms of GSR – and continues to worsen, from 51% in 2020 to 46% today. The reason is that most institutions are focused on stabilization purposes (as opposed to Africa’s strategic funds) and they tend to be less accountable and sustainability-focused. That said, they have proven certain level of resilience and most funds that were heavily withdrawn during Covid-19 (Mexico’s FEIP, Colombia’s FAE-FAEP, Peru’s FEF, Chile’s ESSF-PRF and T&T’s HSF) are back on their feet.
This year’s scoreboard is led by four SOIs: a state investor from Asia (Temasek), a pension manager from North America (CDPQ), a superannuation fund from Oceania (NZ Super), and a sovereign fund from Africa (NSIA), all with 100%.
The extended leaderboard on page 16 features 12 sovereign funds and 29 pension funds with scores between 88% and 100%. Most of the funds in this selected group hail from developed markets: 17 from Europe, 11 from North America and 9 from Developed Asia and Pacific. Only four funds are from emerging markets: NSIA from Nigeria, GPF from Thailand, PIF from Saudi Arabia, and Mubadala from the UAE.
The 41 leaders manage a total of US$ 8.7 tn in capital, over a third of the capital assessed this year. They lead the way in terms of best practices, with an average 9.2/10 G score, an average 9.5/10 S score, and an average 4.3/5 R score.
We note significant progress beyond the leaders: among the funds that were rated in both 2022 and 2023, 69 of them got higher marks, 94 stayed the same and only 22 got lower marks. SOIs with the largest improvements include the following:
Saudi’s PIF (+32%) is managing to make its unparalleled growth sustainable by pursuing best practices. Its annual report is a rare display of transparency, including audit accounts, evolution of AuM, asset allocation, returns and assets; and its chairman announced a “net zero by 2050” commitment in November 2022.
Oman’s OIA (+28%) is also pursuing operational excellence and identity following the merger of two different organizations and portfolios, SGRF and OIF, in 2020. Its latest annual report sheds light on major investments and exits, portfolio strategy and governance; and it is forming a new framework to align with SDGs.
Armenia’s ANIF (+28%) is a great example of a new fund that is enhancing governance and sustainability and addressing resilience factors as it matures. The Central Asian fund did not renew its MoU with RDIF and closed its Moscow office to open one in Abu Dhabi and establish more formal work with UAE entities.
Abu Dhabi’s ADQ (+24%) recently published a new and detailed website as well as its first sustainability report with plenty of details and metrics. Ahead of COP28, which will be celebrated in the UAE in December 2023, the newest Abu Dhabi SWF wants to set an example by aligning national priorities with SDGs.
Egypt’s TSFE (+24%) is following the example of its Eastern neighbors and pursuing specific sustainable policies that align with responsible investment frameworks. Its website now offers a window into the fund’s regulations, including the SWF Law, and actions, such as its multi-sector investments and contribution to Egypt’s GDP.
Disclaimer about the GSR scoreboard:
Global SWF’s GSR scoreboard should not be considered an endorsement of certain sovereign entities over others, and it is not necessarily a reflection of current or future events. Some funds may have ticked certain boxes but that does not make them more trustworthy, stable, or successful. For example, Sweden’s Alecta may be in the leader group with 92% but was quick to dismiss its CEO after certain investment losses, which goes to show accountability but also lack of resilience to regular cycles. The Netherlands’ APG and PGGM may enjoy full marks in resilience, but they endured some extraordinary losses in 2022. And Kuwait’s KIA and PIFSS may maintain a 48% score but also had a turbulent year with political shakeups and executive layoffs. Sadly, government-related investors will always have a degree of uncertainty, and GSR scores are not necessarily indicative of future results or success.
Institutional investors are increasingly aware of the importance of embracing good governance, green policies, and strong resilience in their daily operations as investment organizations.
We recently went through our annual update of investment returns. Comparing returns across SOIs is never easy and it usually takes a lot of assumptions and disclaimers. Yet, most funds have now reported their FY22 results, and we have looked at the average returns for the past decade, which we consider a fair cycle. Of the overall sample, we could calculate the returns for 94 SOIs, with the following, usual caveats:
SOIs have different fiscal years and those reporting in March and June have historically had a disadvantage;
Some funds only report returns on a rolling basis, so we relay on our estimates for the 10-year returns; and
FY13-FY22 was a great decade for investing and favored the funds with a higher weight in US equities.
Intuitively, stabilization funds and strategic funds report lower averages, while savings funds and pension funds have better results, given their risk appetite and asset allocation. The average return for a SOI in that period was 6.6%, with NZ Super (12.1%) and CPP investments (10.9%) leading the pack.
In this context, we have studied the relationship between high standards around governance, sustainability and resilience, and superior financial returns, with the following results:
G scores vs Returns: 0.38 correlation. This is the strongest positive relationship and suggests that robust transparency and accountability can lead to good financial returns. Of those with a perfect G score, only Panama’s FAP and Azerbaijan’s SOFAZ averaged less than 3% return due to their weight in fixed income.
S scores vs Returns: 0.19 correlation. Several studies have suggested that responsible investing leads to superior returns and, indeed, we can observe a positive albeit weaker relationship. Some US pension funds including Ohio STRS, Michigan ORS, and MassPRIM have returns over 9% despite having a poor S score.
R scores vs Returns: -0.03 correlation. Our data shows practically no relationship between resilience and financial performance. Some resilient funds like ISIF have lower returns due to their specific investment profile, while some others with a bad R score like Finland’s Solidium present strong financial returns.
GSR scores vs Returns: 0.24 correlation. The overall coefficient has slightly increased from last year’s 0.22 despite changing the length of the annualized returns from six to 10 years. The results could be stronger, but there are many other conditions in play, such as the mission, investment profile, and manager’s alpha.
SOIs with high GSR scores and high returns: NZ Super, CPP and Future Fund, among others
SOIs with high GSR scores but low returns: ISIF, COFIDES and GPF, among others
SOIs with low GSR scores but high returns: WSIB, Alaska PFC and Virginia RS, among others
SOIs with low GSR scores and low returns: NSSF, GHF+GSF and FGS, among others
The leader of this year’s assessment is Temasek Holdings. For the past three years, the Singaporean State-Owned Investor has consistently ranked among those with best practices globally, and this year it scored 100% of the GSR elements with its website providing more clarity around its organizational structure.
Temasek sets very high governance, transparency, and accountability standards: it discloses information it is not required to, such as total assets and financial returns; it pays taxes overseas; and it is held accountable for its financial performance.
Temasek is also a trailblazer when it comes to sustainability and responsible investing: it has been carbon neutral for the past three years and is committed to reach net zero emissions by 2050; it has expanded its ESG integration to include climate risk; and it has adopted an aggressive internal carbon price (US$ 50 per tCO2e).
Lastly, Temasek is clearly focused on resilience and long-term survival: its 2030 strategy revolves around the concept of building a resilient, forward looking portfolio; it aims at not only surviving but thriving in uncertain times; and it relies on three major engines of long-term growth: investments, partnerships, and development.
We had the pleasure of sitting down with Eu Jin Chua, Managing Director of Institutional Relations, to discuss the GSR scoreboard’s elements, the keys for Temasek’s success, and the future ambitions of the institution.
[GSWF] In the past decade, Temasek’s 10-year total shareholder return was 7%, beating some other major institutions that are pure financial investors. What would you say Temasek’s main success factors are?
[T] Temasek’s journey began in 1974 when it was incorporated with a S$ 354 million (US$ 0.3 billion) portfolio, which included companies that the Singapore Government used to hold directly. There was to be a clear division of governance between the Government as a policymaker and regulator, and Temasek as a commercial investor and owner.
In the 1980s and 1990s, Temasek started being an active investor. We grew with Singapore in our early years, as some of our portfolio companies ventured beyond Singapore and scaled to be globally competitive. In 2002, Temasek stepped out to build a second wing of growth with a transforming Asia as it evolved to be a global investor. We opened our first overseas offices in Mumbai in 2004, then in Beijing, before venturing further to open offices in the Americas and Europe.
We have also increased our exposure outside Asia to capture global opportunities for innovation, shifting our portfolio exposure by adding more exposure to developed markets in the process. Our exposure to developed markets is 65%, and our growth markets exposure is 35% as at 31 March 2022, compared to 55% and 45% respectively in 2011. As the global landscape becomes more complex and uncertain, Temasek seeks to build a resilient and forward looking portfolio.
[GSWF] Temasek is a unique investor: an active seller, with US$ 173 billion divested in the past decade, and focused on industries and trends, rather than asset classes. Can you walk us through your portfolio mix?
[T] We seek opportunities to deploy catalytic capital to address global challenges, especially in areas aligned with long term structural trends. And so, there’s no top-down allocation to sectors. The four structural trends that shape our long term portfolio construction are – Digitization, Future of Consumption, Sustainable Living, and Longer Lifespans.
Digitization and Sustainable Living are megatrends with a pervasive impact across many sectors as well as on the business models of emerging and established businesses. Future of Consumption and Longer Lifespans reflect structural shifts in consumption patterns and growing needs of longevity arising from our population growth and longer expected lifespans. These trends have grown from 13% of our portfolio in 2016 to 30% of our portfolio as at 31 March 2022.
By portfolio exposure, Financial Services (23%), Transportation & Industrials (22%), and Telecommunications, Media & Technology (18%) are our three largest sectors. Guided by our view that opportunities in sectors are converging, we will continue to focus on Consumer, Media & Technology, Life Sciences & Agri-Food and Non-bank Financial Services. Together, these sectors constituted 33% of our overall portfolio in 2022, a significant increase from a 5% share in 2011.
Temasek backs innovations and technologies at pre-commercialized stages to be at the leading edge in relevant areas of Artificial Intelligence, Blockchain, Cybersecurity, and Deep Tech, and engages closely with portfolio companies on their efforts in assessing potential disruption risks and identifying transformation opportunities arising from these trends.
[GSWF] Your international portfolio is very balanced, with 22% in China and 21% in the US. How do you see the current tensions and developments, and how does Temasek look at geopolitical risk?
[T] We are in a world of persistent inflation, restrictive macro policy and lower growth. Intensifying geopolitical tensions have impinged on the globalization of trade, investment, and technology. We have seen a renewed and urgent focus on national security, including energy and commodity sufficiency, data ownership, and techno-nationalism. The supply disruptions during COVID have added further impetus to the rethink of supply chains, especially for critical products.
Both the China and US markets are important investment destinations for Temasek. We do not have top-down target allocations for geographies. Geographical risks are factored in when we conduct bottom-up intrinsic value tests for each new investment, with expected returns evaluated against a risk-adjusted cost of capital that is derived using the capital asset pricing model. Investments in riskier sectors or markets will have higher costs of capital.
Against this macroeconomic backdrop, Temasek’s 2030 strategy has become even more relevant – comprising:
1.Building a resilient, forward looking portfolio,
2.Putting sustainability at the core of all that we do,
3.Developing new competencies in the horizontal enablers of Artificial Intelligence, Blockchain, Cybersecurity, Data & Digital and Sustainable Solutions, and
4.Continuing to evolve our organization.
[GSWF] Since you joined Temasek, you have seen the number of staff grow from 254 in 2007 to 900 today. Do you think personnel will or should keep growing at the same pace as the portfolio?
[T] Our staff strength has been growing in tandem with our portfolio as we expand globally and build a future-ready organization. We have about 900 people of 33 nationalities across 12 offices in 8 countries. Over the years, we have branched out to establish a presence in key centers around the world — first, in China and India, then Vietnam. As we identified the trends that guide portfolio construction, we expanded beyond Asia, to the Americas and Europe.
The core of this global footprint is our people. We believe that everybody must be driven by purpose, because that will determine our steps for this decade and beyond. Our purpose, So Every Generation Prospers, serves to guide us in this complex and ambiguous world. Temasek is always a work in progress, but our people have courage, conviction, tenacity, and purpose as generational stewards to work towards the prosperity of our current and future generations.
Our international offices are part of our 2030 strategy to grow our organization, talent, and capabilities. In today’s complex world, this is critical to help address the numerous issues that we face – from geopolitical tensions to the macro environment. Our offices overseas work closely together to expand Temasek’s presence and access to opportunities, in addition to tapping on the expertise of sector teams and Temasek’s network of portfolio companies and platforms.
Our newest office will be in Paris, which together with London and Brussels, will help us enhance access to deal flow, partnerships, and talent pool across both the European Union and the broader Europe, Middle East and Africa region.
[GSWF] Over the years, governments around the world have tried to replicate the “Temasek model”. What would be your advice to other Sovereigns reading this report and trying to follow Temasek’s footsteps?
[T] What has worked for Temasek may not necessarily work for all sovereign owned investors. We can, however, explain why and how we were set up to give you an insight into what were in the minds of our founding fathers.
Temasek was established as a commercial investment company in 1974, because the Government felt that it was necessary to separate governance from business management. The objective of such an investment company, owning and managing these assets, was to allow the government to focus on its core role of policymaking and regulations.
Neither President of Singapore nor the Government are involved in our investment, divestment, or business decisions, and they do not guarantee our obligations. Instead, the Government holds the Board accountable for our performance by assessing Temasek’s long term returns.
Similarly, we hold the boards and management of our portfolio companies accountable for their activities but do not interfere in their day-to-day management and business decisions. As an engaged shareholder, we keep abreast of industry developments that impact on our portfolio companies and track their performance. We regularly engage their leadership to understand their strategies and responses to changing operating environments, and longer term trends.
Over the years, our portfolio has shaped alongside the existing risks and opportunities and the longer term trends. Additionally, our T2030 strategy sets our course as we navigate an increasingly complex world towards our goals of being a Purpose-Driven Organization, providing Catalytic Capital, and growing as a Networked Organization.
Temasek was established to contribute towards a better world through its investments, uphold good governance, and grow our initial portfolio for future generations. These principles remain as relevant today as they did in the early 1970s and are defined in three roles: an active investor and shareholder; a forward looking institution; and a trusted steward.
[GSWF] Let’s now look at the three different aspects of the GSR Scoreboard for Temasek:
[GSWF] Temasek's contribution under the NIR framework forms part of the overall NIRC, which is estimated to be US$ 17.3 billion (S$ 23.5 billion) in FY23. Does the success of “Singapore Inc.” reside in the separation of powers between MAS, GIC, Temasek and CPFB?
[T] “Singapore Inc.” is a popular way to describe Singapore’s success and often in a complimentary manner. But I can only comment on Temasek (and turn you to the other organizations, each of whom have their distinct missions).
The Government’s relationship with Temasek is that of a shareholder and investee company, just like any other shareholder of a company. The Singapore Government is not involved in Temasek’s investment, divestment, or any other business or operational decisions. Temasek declares dividends annually in accordance with our dividend policy. Our Board sets our dividend policy, balancing the sustainable distribution of profits as dividends to our shareholder with the retention of profits for reinvestment to generate future returns. As a commercial company, Temasek also pays taxes.
Temasek also contributes to the annual Government budget through the Net Investment Return (NIR) Contribution. The NIR framework allows the Government to spend up to 50% of the expected long-term real returns on the net assets invested by MAS, GIC and Temasek. To be clear, NIR is not an outflow for Temasek and the NIR framework does not determine the amount of dividends we declare to our shareholder.
[GSWF] Can you please explain the differences between Temasek Holdings and Temasek International, and what it means to have a common CEO since 2021? [T] Dilhan holds the roles of Executive Director & CEO of Temasek Holdings (appointed in 2021), and CEO of Temasek International (appointed in 2019).
Incorporated in 1974, Temasek Holdings (TH) is wholly owned by the Singapore Government through the Minister for Finance. The principal activity of TH is that of an investment holding company.
Temasek International (TI), a wholly-owned subsidiary of TH, was created a decade ago as the commercial arm of Temasek to drive the investor role of Temasek as a long term owner and active investor.
As Executive Director & CEO of TH, Dilhan is responsible for the Stewardship role of Temasek, particularly in respect of Temasek’s Constitutional responsibilities to safeguard its own past reserves, as a Fifth Schedule entity. This is complementary to his role as CEO of TI, as an active investor, and overseeing the operations of the firm as well as the organization of its talent and resources to deliver sustainable value over the long term for Temasek.
[GSWF] Temasek is clearly one of the most active Sovereign Investors when it comes to Sustainability and Net Zero commitments – and yet, it has shied away from membership organizations. Is this by design?
[T] Our commitment to sustainability is deeply rooted in our purpose. We value the roles various global organizations and industry alliances play in defining and advancing best practices. We remain in regular dialogue with them and their members, regardless of our memberships, so that we can play a constructive role as a private sector participant. Our approaches to embedding climate and sustainability in our investments take reference from various global frameworks and are designed to ensure relevance in the context of our characteristics as a long term asset owner of our portfolio.
We have introduced an expanded approach to include climate analysis in our ESG integration framework. The analysis is mandatory for all new investments that are evaluated and examine climate impact from several perspectives:
Potential investee company’s contribution to climate change through its carbon footprint;
Impact of climate change from physical and transition risk perspectives; and
Any potential new opportunities arising from technology innovations as well as evolving customer needs.
We also apply an internal carbon price, currently US$ 50 per tCO2e in our investment evaluations to account for the potential exposure to transition risk. The intention is to increase this progressively to US$ 100 by the end of this decade.
[GSWF] Your journey to Net Zero is very ambitious and the reduction in carbon emissions in FY20-FY22 was likely helped by Covid-19. Do you think it will stay that way now that global travels are back?
[T] As a company we have maintained carbon neutrality for the third year running in 2022. Our 2030 target is to reduce the net carbon emissions attributable to our portfolio to half the 2010 levels, with the ambition to achieve net zero emissions by 2050. To progress towards our climate targets, we have identified three pathways: (i) we invest in climate-aligned opportunities; (ii) we enable carbon-negative solutions, such as technologies for Carbon Capture, Utilization, and Storage and nature-based solutions; and (iii) we encourage and support ongoing decarbonization efforts in businesses.
With the resumption of economic activity post the COVID-19 period, we expect higher emissions levels for the firm and for some portfolio companies. Emissions trajectories will not be linear, but similar to our financial returns, we prioritize the long-term over the short-term. The biggest lever we can have with our capital is to deploy it purposefully, in order to accelerate climate solutions and thereby catalyze positive real-world impact.
[GSWF] We are often questioned how we define Resilience in the context of Sovereign Investors. Can you please share how Temasek looks at resilience and at new, potential “black swan” events?
[T] Resilience is what will allow us to not only survive but thrive in uncertain times. As such, we need to focus on resilient growth as a key strategy and have holistic conversations around it.
The first key is financial strength. To have a resilient company and a resilient business model, a company must have a strong balance sheet, a strong core business, and an intense focus on positioning for growth – organically and inorganically. And for this, every company needs 3 things: the right strategy, the right capital structure with strong capital management, and the right organization and people focusing on talent and capabilities and continuous improvement. Companies need to be in the business of continuous transformation. We will need to constantly look ahead and anticipate not just what is down the road, but what lies around the corner. One clear manifestation of this is the impact of generative AI on our businesses. Digitization and automation are therefore key business imperatives.
Another key to resilience lies in developing our workers, who are the heartbeat of our companies. We must proactively engage them if we want our companies to be future-ready. How effectively we can accelerate our climate journeys is also another factor to achieving resilience. Some ways we have done so have been indicated in our response above.
The last key to resilience is partnerships. In an increasingly uncertain world, we cannot weather challenges alone. Instead, we value an ecosystem approach where we scale capital, expertise, and access to opportunities through strategic partnerships. At Temasek, everything we do is underpinned by how we operate as a networked organization.
[GSWF] Can you please provide some examples of how your investment, partnership and development engines make you a more resilient and forward-looking organization?
[T] As we navigate an increasingly complex world, we have been looking beyond direct investments to build a resilient and forward looking portfolio through our three engines: investment, partnership, and development.
Our Investment Engine will continue to deploy catalytic capital in structural trends and partnering our portfolio companies as they reposition for the future. We have reshaped our portfolio in many ways to become more resilient and better weather shocks over the last decade. For example, we invested significantly in Tech, Life Sciences, Non-bank Financial Services, Consumer and Agri-Food; grew our global footprint and increased our exposure to US and Europe; and embraced innovation and captured emerging opportunities by looking into unlisted and early-stage opportunities.
Our Partnership Engine comprises our Solutions Platforms and Asset Management Business. We look to strategic partnerships to catalyze growth and build scalability. Some examples of our partnerships include our joint venture with BlackRock called Decarbonization Partners, which will focus on late-stage venture capital and early growth private equity investing, targeting proven, next-generation renewable and mobility technology and solutions. We are also a founding partner of the Brookfield Global Transition Fund that is helping to accelerate the global transition to a net zero economy by investing in the transformation of carbon-intensive industries and development of clean energy sources.
Our Development Engine will build future growth sectors and leading enterprises through upstream innovation and R&D to identify disruptive technologies and new sources of differentiation to create the next generation of leading companies:
We set up ClavystBio via CLA to invest in life sciences companies and develop an innovation district in Singapore;
We have cultivated strategic partnerships with deep tech investor to help us gain insights on deep tech and scientific research which could disrupt existing businesses or offer exponential growth potential in the future, e.g., Breakthrough Energy Ventures (BEV), which has made several co-investments with Temasek to expedite the commercialization of promising technologies capable of addressing climate change challenges on a global scale; and
Lastly, we also have Sydrogen Energy, a JV launched with Nanofilm that aims to tap on opportunities in the hydrogen economy; accelerate the proliferation of hydrogen energy, a sustainable fuel source; and develop innovative solutions to enable commercial adoption.
Governance: 10 elements (into brackets, % of SOIs that scored every element)
#1 – Mission & vision: Does the Fund clearly state its mission, objective, or purpose? (100%)
This is the easiest element to address. The purpose is at the core of the fund’s existence, and most SOIs state their objectives on their website. Those that do not maintain a website do it through other public means. This was one of the very few points scored by Cyprus’ NIF, Peru’s FEF, or Mongolia’s FHF-FSF.
#2 – Deposit & withdrawal rules: Does the Fund clearly state how it is funded and possibly withdrawn? (79%)
#2 for SWFs: Do we know how the fund gets its capital from and how is it possibly withdrawn?
#2 for PPFs: Is there a statement for the contributions and distributions made to pensioners?
This element is aligned to question #23 but seeks transparency rather than resilience. This matter represented the biggest improvement for sovereign wealth funds (+19% when compared to 2022), given the new disclosures provided in their triennial IFSWF self-assessments and/or in their websites and annual reports.
#3 – External manager reputation: Is there a robust process to select external managers, if any? (51%)
This question seeks transparency in the selection of external parties to avoid recent cases such as Malaysia’s 1MDB with PetroSaudi, and Angola’s FSDEA with Quantum Global. Some sovereign funds act as de-facto managers on behalf of their governments and this question may not be fully applicable to them.
#4 – Internal & external governance: Does the Fund provide clarity of its governance structure? (92%)
This is the second most addressed element: who are the main stakeholders and how are the Board of Directors / Trustees and the leadership formed? The CEOs of Abu Dhabi’s ADIA, and Bahrain’s FGR and Mumtalakat are members of their respective royal families, which may not be perceived as a best practice elsewhere.
#5 – Investment strategy & criteria: What kind of assets does the Fund seek to invest in? (89%)
The investment strategy is a common question to be answered to, and some State-Owned Investors would go as far as listing specific criteria a business should meet to be funded. Only 16 SWFs – mostly strategic funds – and six pension funds fail to mention what kind of stocks or assets they are looking for.
#6 – Structure & operational data: How is the Fund structured as an investment organization? (56%)
We are often challenged by the inclusion of this question and the rationale of asking for an organizational chart. However, we believe it says a lot about how the institution is run and structured and is an important question for the stakeholders. Canada’s BCI and CPP, Ireland’s ISIF and Australia’s Aware Super only failed on this point.
#7 – Annual accounts audited: Are financial statements audited and in the public domain? (71%)
We could find and read the audited statements of 82% of the pension funds assessed – however, the ratio is much lower among sovereign funds, and 41 of them fail to have their financials publicly available. These may be signed off by the State Auditor or by a major accounting firm, but their citizenry cannot access them.
#8 – AuM figure public: Does the Fund provide clarity on how much capital it manages? (89%)
22 sovereign investors do not share the size of their balance sheet with their citizenry, half of which are in the MENA region: UAE’s ADIA, ADPF, ADQ, EIA, GPSSA, and SAM; Kuwait’s KIA and PIFSS; Qatar’s QIA; Saudi Arabia’s NDF; and Morocco’s Ithmar.
#9 – Details of investment portfolio: Does the Fund provide clarity on what assets it currently holds? (69%)
An increasing number of State-Owned Investors offer an insight into their major portfolio investments. A few provide a comprehensive account of every holding, including their market value. These include Japan’s GPIF, New Zealand’s NZ Super, Norway’s NBIM (except for real estate), and USA’s CalPERS.
#10 – Annual vs LT return: Is the most recent year’s return provided? (67%)
This question highlights the heterogeneity of the industry, as every investor reports results in a different way. We ask for single-year investment return. Malaysia’s Khazanah, Abu Dhabi’s Mubadala, and Saudi’s PIF ticked this box for the first time, while ADIA, GIC, OIA, and PIC continue to provide multi-year rolling returns only.
Champions in Governance: Future Fund
Australia Future Fund was established by the Act 2006 to “make provision for unfunded superannuation liabilities that will become payable during a period when an ageing population is likely to place significant pressure on the Commonwealth’s finances.” The fund was seeded with part of the proceeds of the privatization of Telstra, as well as a 17% stake in the telecommunications company, part of which was divested between 2009 and 2011.
The initial idea was to keep injecting capital in the fund, while setting the first drawdowns for 2020-21. No additional money was contributed and the withdrawals were postponed to 2027-28, ensuring the coverage of all unfunded liabilities and cementing the Future Fund as a self-sustaining savings fund. Over the years, the Board of Guardians was also given the responsibility of managing other pools of capital in addition to the Future Fund, and they have different risk profiles, asset allocation and drawdown schedule.
The autonomy of Future Fund is ensured by a robust governance framework, which is rare among SWFs. The Board of Guardians is accountable for the oversight of the funds, while the Management Agency is responsible for providing advice and recommendations to the Guardians. The six board members are appointed by the Treasurer and responsible Ministers based on their expertise in investments and corporate governance.
Sustainability: 10 elements (into brackets, % of SOIs that scored every element)
#11 – Ethical standards & policies: Does the Fund have a code of conduct or conflict of interest policy? (71%)
We seek a formal and developed policy around ethics, conduct or conflicts of interest; or an investment exclusion list, which funds like Sweden’s AP Fonden and Australia’s Future Fund maintain, guided by ethical concerns. Many SOIs list their values along with their mission and vision, but do not provide any further detail.
#12 – Stewardship team in place: Does the Fund employ a dedicated team for Responsible Investing? (49%)
One would think that sustainability is in every investor’s mind these days – but the answers to this question say otherwise: a total of 62 SWFs and 40 PPFs of our sample do not employ a single ESG-dedicated professional. Some would still claim that sustainability factors are integrated into their investment decision process.
#13 – Economic mission: Does the Fund seek economic advancement? (49%)
This question is intrinsically linked to question #19, as most strategic funds pursue not only financial returns but also the development of the host economy. Funds can also have an economic mission overseas, as is the case of China’s CADF in several African countries, including Ethiopia, Ghana, Kenya, Zambia, and South Africa.
#14 – Economic impact & measure: Are ESG key metrics or figures provided? (42%)
Funds with economic goals should report appropriate KPIs, and these are normally included in an annual ESG report. Even those that do not yet issue ESG reports can report metrics regularly, e.g., Saudi’s PIF (employment and GDP contribution), and Turkey’s TVF (financial, human value, natural, intellectual, and social value).
#15 – ESG annual report: Does the Fund produce an annual ESG report? (38%)
This question seeks a standalone responsible investing report, or a meaningful section in the annual report, published on a regular basis. Only 38% of the sample – 23 SWFs and 53 PPFs – meet the requirement today. Furthermore, some ESG reports could use more specific KPIs and progress, and less generic literature.
#16 – Alignment with SDGs: Is the Fund a UNPRI signatory member or does it align with the SDGs? (50%)
Only 33% of the SOIs, including 13 SWFs and 53 PPFs, are signatory members of the UN Principles for Responsible Investing (PRI) and 34 other institutions align with the Sustainable Development Goals (SDGs). Morocco’s Ithmar was delisted as a signatory member in 2020 for failing to meet the minimum requirements.
#17 – Partnership & memberships: Does the Fund collaborate with international investors or bodies? (63%)
This question goes beyond membership of international bodies and seeks partnerships and/or co-investments with other State-Owned Investors. Once funds start pursuing those, they are generally more transparent and accountable. This number is rapidly increasing as MoUs and investment clubs flourish worldwide.
#18 – Emerging markets / managers: Does the Fund invest in emerging markets and/or managers? (79%)
A significant number of State-Owned Investors hail from an emerging economy and invest at home, others are from the developed world and invest in growth markets, and a third group invests via emerging managers. The latter is increasingly common among US PPFs, including NYS CRF (US$ 9.5 bn) and Texas TRS (US$ 5.9 bn).
#19 – Role in domestic economy: Does the Fund invest in the domestic economy and businesses? (84%)
The days when SWFs were defined as solely foreign assets holders are long over. Today, 74 of the Top 100 SWFs invest domestically, and some of them do so exclusively. Some of the largest SWFs that continue to invest overseas exclusively are Norway’s NBIM, Abu Dhabi’s ADIA, Singapore’s GIC and South Korea’s KIC.
#20 – ESG risk management: Does the Fund accept and address climate change and other ESG risks? (55%)
Decarbonizing and climate issues are not the only ESG-related challenges, and SOIs must acknowledge non-financial risks before addressing them. Only 55% of the Top 200 funds talk of climate or ESG in a broader sense in their risk management policies. PPFs are much more likely (68%) to address such risks than SWFs (41%).
Champions in Sustainability: Public Investment Fund (PIF)
In November 2022, Saudi Arabia’s Public Investment Fund (PIF) became the first SWF in the Middle East and one of the first ones globally to announce aims to achieve net-zero emissions by year 2050. But this was nothing really new, as PIF had been working on sustainable initiatives since 2017.
Two examples can illustrate the efforts of PIF around future sustainability trends. The first one is electric vehicles (EV), one of the main targets for decarbonization and economic diversification. PIF invested over US$ 1billion in Lucid Motors, and the company last year announced it is building a factory in Saudi Arabia. Today, Lucid is listed in Nasdaq and PIF’s 61% stake is valued at c. US$ 8 billion. In addition, the SWF announced in November 2022 the launch of Saudi Arabia’s first electric vehicle brand, Ceer, in a joint venture with and based Hon Hai Precision Industry Company (Foxconn). The first Ceer models are scheduled to roll off the production line in 2025 and the brand is projected to contribute US$ 8 billion to Saudi GDP by 2034, creating 30,000 jobs.
Additionally, PIF is mandated to develop 70% of Saudi Arabia’s renewable energy capacity by 2030, and an example of the significant progress that is being made towards this is the investment of over US$ 6 billion by PIF and its partners in five solar power projects, with a cumulative capacity of approximately 8 gigawatts. These investments will support Saudi Arabia’s target of a 50% renewable energy mix by 2030.
Resilience: 5 elements (into brackets, % of SOIs that scored every element)
#21 – Risk Management policy: Does the Fund have a robust risk management framework in place? (69%)
Having a risk management policy and having it available for the citizenry seems like a reasonable ask. And, indeed, most institutions talk about risk management in their websites, but only 61% of sovereign funds and 76% of pension funds elaborate their risk approach in detail in their websites or annual reports.
#22 – Strategic asset allocation: Is there proper thought behind the asset allocation of the Fund? (66%)
Having a robust asset allocation is key to define levels of liquidity and ensure resilience in times of uncertainty. Some strategic funds including Spain’s COFIDES, France’s Bpifrance, Greece’s Growthfund, and India’s NIIF provide a view per industries but not per asset classes, liquidity, or types of securities.
#23 – Policy for withdrawals: Is there a mechanism to avoid the depletion of the Fund in the long term? (28%)
#23 for SWFs: Is there a specific mechanism to avoid depletion?
#23 for PPFs: Is the funding status disclosed and if so, is it 100% or above?
Not surprisingly, this question is the most difficult to respond to and justify by Sovereign Investors. For SWFs, we seek a withdrawal mechanism with certain limits or conditions, and only 35% meet the criteria. For PPFs, we ask for the pension scheme to report a fully funded status (100%+), which is the case for only 20% of them.
#24 – BCM / Crisis team in place: Does the Fund employ a dedicated Operational Risk team? (50%)
Covid-19 highlighted the need for State-Owned Investors to not only be successful investors, but also be run seamlessly as robust and resilient organizations. We here seek a dedicated team around operational risk or business continuity management (BCM), which happens in less than half of the cases: 39 SWFs and 60 PPFs.
#25 – Speed & discipline: Is the Fund generally well placed for its long-term survival? (33%)
This answer is the only one with a certain degree of judgement, based on our insights into the funds’ operations and finances. Some of them may have ticked most of the previous boxes and adapted to unexpected crises, but we still have not found enough evidence or are skeptical of their ability to survive in the long-term.
Champions in Resilience: Nigeria’s NSIA
Nigeria does not necessarily come to mind when it comes to solvency, and credit rating agencies classify its sovereign debt as B-/B2 (see page 12). However, the Nigeria Sovereign Investment Authority (NSIA) has been an example of best practices since it was set up in 2012. Its predecessor, a stabilization fund called Excess Crude Account (ECA) had peaked at US$ 20 billion in 2007 but was rapidly withdrawn by the different cabinets.
To avoid the pitfalls of ECA, the NSIA was designed as a three-tier umbrella with stabilization, savings and infrastructure development missions. The Stabilization Fund, with 20% of the AuM since inception, aims to provide budget support in times of economic stress; the Future Generations Fund, with 30% of the allocation (40% until 2018), saves for future generations of Nigerians; while the Nigeria Infrastructure Fund, with 50% of the allocation (40% until 2018), invests in catalytic domestic infrastructure. They all have different horizons, target returns, asset allocation and style (SF and FGF are external and global; NIF is internal and domestic).
More importantly, the three funds are ring-fenced and have different fiscal rules. In October 2020, the Federal Government of Nigeria requested NSIA’s first withdrawal of capital, in the sum of US$ 150 million (43% of SF’s balance), to help contain the impact of Covid-19 and low oil prices in the country’s fiscal position. Prior to this withdrawal, the NSIA received a total of US$ 1.8 billion core capital contribution from the Government. In 2021, the Presidential Infrastructure Development Fund (PIDF), a fund managed by the NSIA on behalf of the government, injected US$ 312 million in repatriated assets. NSIA recorded a net core capital injection of US$ 100 million in 2020 while US$ 160 million came from retained earnings. These developments accounted for a growth in AuM of US$ 260 million between 2019 and 2020.
Other SWFs without such delineated funds suffered larger withdrawals and longer consequences. Under the leadership of Aminu Umar-Sadiq, who assumed the role of CEO in October 2022, NSIA continues to uphold the fund allocation and investment approach, and it amplified the diversified assets strategy, which has insulated the institution from headwinds over many market cycles.
Per mission: As highlighted before in this report, pension funds are much better run than sovereign funds when it comes to best practices in general. Among SWFs, those tasked with a savings mission score better in governance and resilience, while strategic funds fare better in sustainability because of their domestic goals. Stabilization funds are designed to be used during crises and may be vulnerable to depletion in the long-term.
Per size: We previously stated that the largest funds are not necessarily the most successful in terms of financial returns, but when it comes to GSR, size ensures robustness: the 40 extra-large funds, with AuM over US$ 169 bn perform better than the rest, especially around resilience. The large and medium funds perform similarly well, while those below US$ 37 bn in AuM fail the test in terms of long-term survival.
Per age: The oldest group of sovereign investors, which we can call senior funds aged over 68 years old, present the best performance around governance. The adult funds with ages between 18 and 67 have the best sustainability and resilience scores. The teenager funds have passed the “G” and “S” exams by now but need more work on legitimacy, while the junior funds under 10 years are still finding their feet.
Per liquidity: As in previous years, we demonstrate that too much liquidity or illiquidity is not good. “Super liquid” funds lack progress on responsible investment and resilience, while those that are “super illiquid” address sustainability but not legitimacy issues. The SOIs with the best practices GSR-wise are those that have invested between 69% and 94% in public markets, and between 6% and 31% in private markets.
Ranking of SWFs (by GSR score)
|#||SWF||Country||Est||AuM ($b)||GSR (%)|
|1||NZ Super Fund||New Zealand||2001||39||100%|
|9||Mubadala||UAE - Abu Dhabi||1984||276||88%|
|13||VFMC||Australia - VIC||1994||50||84%|
|19||Dubai World||UAE - Dubai||2005||42||76%|
|27||Alaska PFC||USA - AK||1976||77||68%|
|27||TCorp||Australia - NSW||1983||66||68%|
|27||UTIMCO||USA - TX||1876||66||68%|
|27||Texas PSF||USA - TX||1854||56||68%|
|27||WYO||USA - WY||1974||24||68%|
|27||ND RIO||USA - ND||1989||17||68%|
|41||QIC||Australia - QLD||1991||67||60%|
|41||New Mexico SIC||USA - NM||1958||37||60%|
|50||ADIA||UAE - Abu Dhabi||1967||993||56%|
|50||ICD||UAE - Dubai||2006||320||56%|
|50||ADQ||UAE - Abu Dhabi||2018||157||56%|
|50||SDH / SSH||Slovenia||1993||12||56%|
|59||SK CIC||Canada - SK||1947||16||52%|
|63||TL PF||Timor Leste||2005||17||48%|
|66||T&T HSF||Trinidad & Tobago||2000||5||44%|
|66||Alabama TF||USA - AL||1985||3||44%|
|77||EIA||UAE - Abu Dhabi||2007||91||32%|
|84||SAM||UAE - Sharjah||2008||2||28%|
|87||HKIC||China - HKSAR||2023||8||24%|
|91||Texas ESF||USA - TX||2014||10||20%|
|96||KWAN / NTF||Malaysia||1988||3||12%|
Ranking of PPFs (by GSR score)
|#||PPF||Country||Est||AuM ($b)||GSR (%)|
|1||CDPQ||Canada - QC||1965||297||100%|
|2||BCI||Canada - BC||1999||169||96%|
|7||CalSTRS||USA - CA||1913||309||92%|
|7||OTPP||Canada - ON||1917||182||92%|
|7||AIMCo||Canada - AB||1976||117||92%|
|7||OMERS||Canada - ON||1962||92||92%|
|19||NYSCRF||USA - NY||1983||242||88%|
|19||UC Investments||USA - CA||1933||168||88%|
|19||OPTrust||Canada - ON||1995||18||88%|
|30||CalPERS||USA - CA||1932||457||84%|
|30||ART||Australia - QLD||2022||148||84%|
|30||NYS TRS||USA - NY||1913||132||84%|
|30||HOOPP||Canada - ON||1960||77||84%|
|39||LACERA||USA - CA||1937||68||80%|
|39||COPERA||USA - CO||1931||66||80%|
|39||IMCO||Canada - ON||2016||54||80%|
|49||NYC Compt||USA - NY||1920||242||72%|
|49||WSIB||USA - WA||2005||147||72%|
|49||MSBI||USA - MN||1981||124||72%|
|49||SWIB||USA - WI||1951||123||72%|
|56||Texas TRS||USA - TX||1937||184||68%|
|63||Oregon PERF||USA - OR||1946||95||64%|
|63||Penn PSERS||USA - PA||1917||76||64%|
|65||SBA Florida||USA - FL||1943||178||60%|
|65||MPFA||China - HKSAR||1995||143||60%|
|65||Ohio PERS||USA - OH||1935||127||60%|
|65||Virginia RS||USA - VA||1942||101||60%|
|65||NJ DoI||USA - NJ||1950||85||60%|
|65||Illinois STRS||USA - IL||1939||62||60%|
|75||NCRS||USA - NC||1941||111||56%|
|75||Michigan PSERS||USA - MI||1942||95||56%|
|75||Georgia TRS||USA - GA||1943||87||56%|
|75||OCERS||USA - CA||1945||23||56%|
|83||MassPRIM||USA - MA||1983||95||52%|
|83||Ohio STF||USA - OH||1919||83||52%|
|97||ADPF||UAE - Abu Dhabi||2000||25||32%|
|99||Aramco PF||Saudi Arabia||2017||23||20%|
|99||GPSSA||UAE - Abu Dhabi||1999||8||20%|
Ranking of CBs (by reserves)
Global SWF launched the GSR Scoreboard in 2020 as a new market reference for the governance, sustainability and resilience efforts undertaken (or the lack thereof) by State-Owned Investors. A series of events in the global markets over the past 15 years has stimulated these discussions and a switch in focus; however, we believe that these three themes are not mutually exclusive and must be considered jointly.
In recent years, academic experts and practitioners have attempted to quantify the intentions and actions of asset owners on these fronts. Mr. Edwin Truman, now a senior fellow at HKS and considered by many as the “father of the SWF industry”, developed a scoreboard measuring the transparency and accountability of state investors that is widely accepted and has been published since 2007. In 2021, Mr. Truman published the latest update of his scoreboard, finding a strong correlation between his results and the 2020 GSR Scoreboard1.
Global SWF’s tool is, by design and unlike other systems, rigorous (published every July 1 based on public information only), quantitative (based on 25 points) and, most importantly, independent (funds do not pay to be assessed). It serves as a reality check for asset owners, enabling them to compare themselves with peers and improve their practices, and it allows other market participants to look at their partners objectively. It is only through such comprehensive and routine analysis that we can identify the virtues – and vices – of SOIs.
The Rating System:
The GSR Scoreboard is comprised of 25 different elements, 10 of them related to Governance issues, 10 of them related to Sustainability issues, and five related to Resilience issues. These questions are answered binarily (Yes / No) with equal weight based on publicly available information only, and the results are then converted into a percentage scale for each of the funds. The study is applied to a universe of the world’s Top 100 SWFs and Top 100 PPFs (“Global SWF’s Top 200”), generating 5,000 data points, and repeated annually.
Response and Acceptance of GSR:
Since 2022, we have communicated the preliminary results to the sovereign investors themselves with at least a month in advance. This is something we avoided in 2020 and 2021, as the assessments are based on publicly available information only, and we did not want to be influenced or to be sent any private documentation.
However, we realized that discussing the system and what we were seeking in each of the elements would be a win-win. On the one hand, the funds would follow best practices and become better governed, sustainable and resilient as they pursue higher scores. On the other hand, we would be contributing to the advancement of the industry.
We therefore decided to send the preliminary scores to all SOIs a month prior to the publication. We could not find contact information for 21 of the 200 investors. Of the other 179 funds that were sent their scores, a third decided to engage, comment and/or discuss their efforts and progress. As part of that dialogue, most of those 53 funds provided additional information and were able to increase their scores.
Some executives insisted in debating whether or not their employer fell under the category of “State-Owned Investor”, failing to see the scoreboard as a chance of improving as, simply, an investment organization. Others did not respond – among them, the very large and important ADIA, GIC, GPIF, KIA and NPS.
Yet, we had a positive experience interacting with more than 50 SOIs, developing closer relationships, discovering information that could have been missed in the collation of the 5,000 individual datapoints, and helping them publish additional information. We invite other State-Owned Investors to reach out to us and to take advantage of this increasingly important tool of analysis, as we keep fine-tuning it in the years to come.
The authors of this report would like to thank and acknowledge the contribution of interns Ms. Adhrika Nair in Doha and Ms. Pratyusha Joshi in Boston, for their exceptional work in understanding the system, in mining data, and in assessing the world’s Top 100 sovereign funds and Top 100 pension funds, respectively.
In addition to the practical implications, the GSR Scoreboard has rapidly become a central part of the academic research around governance, sustainability and other best practices of Sovereign Wealth Funds. Since 2021, the system has been mentioned and its results studied in articles published in the world’s top academic journals, including:
Bortolotti, Loss, van Zwieten, “The times are they a-changin’? Tracking SWFs’ sustainable investing”, JIBP 2023 (link)
El-Sholkamy, Rahman, “Harnessing SWFs in Emerging Economies toward Sustainability”, Cambridge 2022 (link)
Dahlan, Lastra, Rochette, “Research Handbook on Energy, Law and Ethics”, EE 2022 (link)
Marie, Mazarei, Truman, “SWFs Are Growing More Slowly, and Governance Issues Remain”, PIIE 2021 (link)
Wurster, Schlosser, “SWFs as Sustainability Instruments? Disclosure of Sustainability Criteria“, MDPI 2021 (link)
Smith, “The fragile state of Globalization”, Laburnum 2021 (link)
Megginson, Lopez, Malik, “The Rise of State-Owned Investors: SWFs and PPFs”, ARFE 2021 (link)
Global SWF studies 642 State-Owned Investors (“SOIs”), including 176 Central Banks (“CBs”), 175 Sovereign Wealth Funds (“SWFs”) and 291 Public Pension Funds (“PPFs”), which jointly manage US$ 48.9 trillion in assets as of June 30, 2023. Today, the industry is highly complex, with mixed forms of legal structure, ownership and portfolios, and we define five major groups of institutional investors, official institutions or asset owners:
Central Banks: We have recently added Central Banks and their reserves portfolios to our remit, avoiding any potential duplication with SWFs. For example, we consider SAMA and HKMA the central banks of Saudi Arabia and Hong Kong, respectively; we separate China’s PBoC (CB) from SAFE Investment Company (SWF), and also distinguish between the reserves managed by the NBK and sovereign funds NF and NIC.
SWF-Stabilization Funds: this is the smallest group of SWFs 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 liquid funds that allocate on average 93% of their capital into stocks and bonds. Examples include Azerbaijan’s SOFAZ, Chile’s ESSF, and Botswana’s Pula Fund.
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 25% to private markets, and with a combined AuM of US$ 7.2 trillion, they represent some of the world’s largest investors in listed equities, real assets and private markets. Examples include Norway’s NBIM, Abu Dhabi’s ADIA, 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. We distinguish two major sub-segments: holding companies tasked with managing stakes in national champions (e.g., Kazakhstan’s Samruk-Kazyna); and catalyzing funds tasked with attracting FDI (e.g., Indonesia’s INA).
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 Japan’s GPIF, Canada’s CPP, 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 their peers, including Singapore’s Temasek, Greece’s Growthfund, or Australia’s QIC.
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 a few pension plans; and Netherlands’ APG invests on behalf of ABP and other pension schemes.
Out of the 642 SOIs, we define a Top 300 list, which can be found in Appendix 2 and allows us to focus our efforts on the most active and sizeable institutional investors. This sample serves us as a fair representation of the heterogenous SOI universe. In 2023, we added Central Banks to our in-depth coverage and capabilities.
All the data is proprietary and is formed from public sources and estimates based on our knowledge and insights. Of the Top 300, only 22 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 their size based on allocation and portfolios.
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 July 1, 2023, and collecting activity up to June 30, 2023, serves as a proof.
Global SWF is an industry specialist that was launched in July 2018 to address a perceived lack of thorough coverage of State-Owned Investors (SOIs), and to promote a better understanding of, and connectivity into and between sovereign wealth and public pension funds. The company leverages unique insights and connections built over many years and offers a range of solutions to any market player acting in the industry, namely:
Consulting Services, assisting with the establishment of new funds and with peer benchmarking exercises.
Data & Research, running the most comprehensive platform on SOIs' strategies, portfolios and executives.
SWF Academy, co-running with LBS the world's only SWF-dedicated Executive Education program.
Our core team sits in New York, London and Singapore, and we have a network of interns, partners and advisors in Wyoming, Boston, Toronto, Coventry, Dublin, Frankfurt, Lagos, Abu Dhabi, Dubai, Doha, and Melbourne.