2024 Annual Report SOIs Powering Through Crises

The macro scenario has made it difficult, once again, for Sovereign Investors to thrive in 2023. Inflation seems to be controlled and interest rates may finally start to drop soon, but the financial markets have reflected the geopolitical uncertainties and concerns about a potential economic crisis in coming months. The World Bank estimates 2023 global GDP growth at a poor +2.1%, before a timid recovery to +2.4% in 2024. Meanwhile, climate change continues to maintain its overwhelming importance, and AI looks set to be a global disruptor.

The recovery of financial markets and sustained high oil prices boosted the industry’s AuM. Sovereign Wealth Funds (SWFs) recovered markedly and peaked at US$ 11.2 trillion; Public Pension Funds (PPFs) increased their assets to US$ 23.1 trillion; and Central Banks (CBs) stayed almost flat at US$ 15.4 trillion. We expect the three groups to reach a combined US$ 50 trillion once again, and pass the 2021 peak at some point in 2024 as they recognize the paper gains most institutions have enjoyed during the past 12 months.

Despite volatility, financial markets performed strongly from January 1, 2023 to December 31, 2023. Most indices around the world were in the green, except for Chinese references Hang Seng and SSE, which dropped for the second year in a row to reflect the country’s economic uncertainty and deceleration of growth. Global bonds and stocks were up +8.4% and +20.7% respectively, and private markets also had a good year, with the PE benchmark growing +33.6%, and with infrastructure maintaining a more modest growth at +2.5%.

In 2023, SOIs invested less, and less often, than in 2022. This may signal an overly cautious approach, as there is no shortage of capital to put to work among these institutions. The average deal stayed constant at US$ 0.35 billion, with ventures remaining unpopular. Compared to 2022, investments by SWFs fell -20% to US$ 124.7 billion in 324 transactions; while investments by PPFs fell -26% to US$ 80.4 billion in 268 deals.

PIF was the lead investor with US$ 31.6 billion deployed in 49 deals, 33% more than in 2022. In a short span of eight years since its reformulation, the Saudi institution has become a powerhouse both at home and overseas, with the objective of advancing Vision 2030 and of becoming the world’s largest SWF by 2030. Together with PIF, four other Gulf funds were again at the Top 10 most active dealmakers globally: the three Abu Dhabi SWFs (ADIA, Mubadala, ADQ), and Qatar’s QIA. We refer to the five of them as the “Oil Five”.

The league table is completed by Singapore’s GIC and Temasek, which were active but not as much as in 2022, by three of the ”Maple Eight” Canadian funds (CPP, BCI, OTPP). Canada’s CDPQ (Fund of the Year in 2022) maintained a lower profile in 2023 and dropped from the Top 10 list. Overall, Singaporean and Canadian funds reduced their activity by -51% and -36% respectively, while GCC investors were almost flat.

The regional preferences of the top investors are changing and there seems to be a renewed interest in emerging markets. Half of the leaderboard invested more in emerging markets than in any other region in 2023, with strong interest in China, Indonesia, Brazil, and especially, India. The South Asian country went up in the ranks to become the second most popular destination after the US, and ahead of the UK and of China.

In terms of industries, over a quarter of the investments in 2023 were in real estate, an interest in relative terms we had not seen since 2014. Financials and infrastructure stayed popular too, with 19% and 18% of the deals respectively. Investment in industrial conglomerates increased due to the domestic investments of Gulf investors, while technology is increasingly integrated with other industries.

Co-investments are becoming more and more popular and for the first time grew over US$ 30 billion. Gulf and Canadian funds were prevalent in co-investments, as well as the king of co-investment GIC. State-Owned Investors also sustained significant divestment activity, including IPOs that allowed Middle Eastern funds to monetize some of their most valued domestically grown assets.

Lastly, most sovereign investors saw their US Equities portfolio grow due to the recovery in share values. Interest remained high in Indian stocks, while it waned in European and Chinese equities.

The forward-looking section of “The World in 2024” analyzes what 2024 may have in store for us and we are treated to an insightful column by Paul O’Brien. Former Deputy CIO of ADIA and faculty member of the SWF Academy, Paul breaks down what sovereign investors might be considering in this environment, including (i) rebuilding allocations to fixed income; (ii) extending duration; (iii) considering allocation to private credit; (iv) reconsidering leverage; (v) re-underwriting assets; and (vi) thinking of impacts on hedge funds.

We find a high correlation between these views and some of the key themes leading allocators, including GIC, CPP, Future Fund, NZ Super, ADIA and NBIM, have been working on in the past year. This year, we also offer a “State of Play” of each major asset class and how these may build up for the year ahead. We continue to see interest in private equity and credit, and in infrastructure and energy.

As in previous years, we thought long and hard about the “2023 Fund of the Year” and decided that NBIM was a worthy recipient of the award.  The Norwegian manager, which invests on behalf of GPFG, recently celebrated its 25 years of global investing and stewardship and continues to serve as a role model for governments setting up new SWFs. In 2023, the fund not only recovered past losses and beat its benchmark, but also continued to build its brand as one of the world’s most influential asset owners. The award is presented to Daniel Balthasar and Pedro Furtado Reis, the Co-CIOs of the US$ 1 trillion listed equities portfolio.

The “Theme of the Year” goes to Energy Transition, which has been debated over and over in the past 12 months. The agenda is being delivered across asset classes, from basic resources to infrastructure and renewable energy, to industrial development and climate tech. Sovereign Investors are gaining exposure to all segments as well as greening existing “black” assets through decarbonization, and deployed a historical maximum of US$ 26.1 billion in “green assets”. Gulf SWFs were responsible for almost half of that figure.

The “Region of the Year” was equally obvious, as all eyes are on the Gulf Cooperation Council (GCC). In 2023, the AuM of SWFs in the area reached a historical peak of US$ 4.1 trillion, and the investment activity, even if slightly lower than in 2022, amounted US$ 82.3 billion, led by the so-called “Oil Five”. The section sheds a light on the different ways capital is managed across the GCC, on the rise of private offices, on the national champions, on the regional stock markets, and on the geopolitics and support within the GCC and beyond.

The section on “Operational Matters” is especially relevant this year as we study several key trends that are shaping the future of the industry. First, we look at the rise of domestic-focused vehicles and the true international firepower of SWFs; and also at the relative size of State-Owned Investors compared to the size of their countries’ GDPs. We then explore other key topics that we have covered throughout the year:

• The establishment of new funds: in 2023, we saw five new SWFs being set up (Maharlika, HKIC, Pakistan, Kosovo and Mozambique), and significant progress with 10 others that could join the club soon;

• The opening of new offices overseas: in 2023, sovereign investors opened nine representative offices, mostly in New York, London and Singapore, and we could see three more in Q1 2024;

• The appointment of new CEOs: 32 top executives were appointed during the year, a significant churn rate. We predict some key changes in the Gulf-based funds in the next 12 months; and

• The appointment of new CIOs: 21 top investment executives were appointed at existing or new funds. CalPERS is, once again, looking for one.

Finally, we offer a revised set of projections in the section “State-Owned Investors 2030”, considering the recovery of the industry’s AuM this year. It is never easy to predict seven years down the road for an ever-changing industry, but we expect global assets of State-Owned Investors, including Sovereign Wealth Funds, Public Pension Funds and Central Banks, to reach US$ 54.9 trillion by 2025, and US$ 71.0 trillion by 2030. By then, the table may be led by Norway’s NBIM, Saudi’s PIF and Japan’s GPIF, with US$ 2+ trillion AuM each.

The report finishes with some rich appendices, including the latest ranking table for the Top 100 SWFs, PPFs and CBs in terms of AuM / reserves and GSR scores; a summary of all the monthly reports shared this year with our clients; and the series of “Cities of Interest” including London and New York.

We saw a fair degree of market volatility and distress in 2023, and Sovereign Investors continue to operate cautiously. The recovery of equity markets as well as the sustained high oil prices pushed the size of the industry as it recovered from a dismal 2022. Yet, funds invested less frequently. Average ticket sizes continued to rise as investors favored large deals in infrastructure and energy over smaller venture capital commitments.

• SWFs deployed US$ 124.7 billion (-20% down from 2022) in 324 deals (-24% down from 2022), with an average ticket size of US$ 385 million. The “Oil Five” (five most active Middle Eastern funds) continued to gain market share and to drive the activity of SWFs globally, despite the drop in deals by Singaporean funds.

• PPFs had again a slow year and deployed US$ 80.4 billion (-26% down from 2022) in 268 deals (-17% down from 2022), with an average ticket size of US$ 300 million. The “Maple Eight” (eight largest Canadian funds) were especially slow but Australian, US and European pension funds supported investment flows.

The three largest tickets of the year were paid by Saudi Arabia’s omnipresent fund PIF. In April, it paid US$ 4.9 billion for US gaming company Scopely, via subsidiary Savvy Games Group. In August, it acquired Standard Chartered’s aircraft leasing division in a US$ 3.6 billion deal, via AviLease. And in September, it agreed to buy SABIC’s steel unit Hadeed for US$ 3.3 billion. The variety of deals shows the unparalleled bandwidth and reach of PIF and its subsidiaries, which are forming a wide net to capture any value-add for Saudi Vision 2030.

The year also saw significant support of sovereign investors to their domestic economy. Saudi Arabia’s “other fund” NDF agreed to finance the construction of the world’s largest green hydrogen production plant to be built in Oxagon city at NEOM; Kuwait’s PIFSS received US$ 8.1 billion worth of land from the government; Türkiye’s TWF injected over US$ 5 billion into three state-owned banks; and China’s CIC agreed to absorb 20% of the Bank of Hunan and to buy more shares in the country’s four largest banks, via subsidiary Central Huijin.

The 2023 league table is led, for the first time in six years, by a fund other than GIC. The Singaporean SWF reduced its investment activity by -37% in volume and by -46% in value, despite having received one of its largest inflows ever from the central bank MAS, US$ 144 billion, which it will need to put to work. Most of this reduction came via developed markets, as the activity in India, China, Brazil and Indonesia was much higher.

The clear winner was Saudi’s PIF, which has become a heavy-hitter both at home and overseas. In the Kingdom, it pursued frequent deals and JVs to keep advancing the domestic economy towards Vision 2030. Overseas, it closed investments in Scopely in the US and Nintendo in Japan (gaming), in Vale Basic Materials in Brazil (mining), and in Heathrow airport and Rocco Forte Hotels in the UK (real assets), among others.

The Saudi fund is accompanied by the other four “Oil Five” Gulf SWFs in the Top 10: ADIA, Mubadala and ADQ in Abu Dhabi and QIA in Qatar. The table is completed by three Canadian funds (CPP, BCI, OTPP) and the other Singaporean investor (Temasek), which has kept a lower profile in 2023 following our methodology. Gulf SWFs have increased their domination of the global transaction activity, to the detriment of Singaporean and Canadian funds, and now represent 40% of all investment value deployed by Sovereign Investors.

The regional preferences of sovereign investors are highly diverse, but in 2023 we can observe a renewed interest in emerging markets, including Saudi, Türkiye, and the UAE (with the help of domestic SWFs), and India, Brazil, China, and Indonesia (mostly from foreign investors). Among the top ten most active funds, five of them preferred emerging markets over other regions in 2023: PIF, GIC, Temasek, QIA, and ADQ. The change in GIC’s appetite is very significant as it invested in developing nations 2.6x times what it did in 2022.

Four other funds are highly biased towards their home markets: Canada’s CPP, BCI and OTPP invested primarily in North American markets, while Mubadala balanced North America and Emerging Markets. Lastly, ADIA maintained a very similar mix in 2023, with 63% of the investment value in North America, and 14% in Europe. Overall, sovereign investment in Europe (including the UK) and in Developed Asia-Pacific (despite renewed interest in Japan) hit a 10-year low, to the benefit of North America and emerging economies globally.

Sovereign Investors continue to calibrate their sectoral preferences according to the latest trends and macro scenario. In 2023, over a quarter of the investments were in real estate, a relative interest we had not seen since 2014. Financials and infrastructure stayed popular too, with 19% and 18% of the deals respectively.

However, if we look at the value of the deals, less than 50% of the capital deployed in 2023 was in real assets, which is the lowest value in the past six years and can be explained by lower deal tickets in renewables. Investment in industrial conglomerates increased significantly over the year, due to the activity of certain Gulf investors contributing to domestic infrastructure and development. Technology as a stand-alone sector has seen a steep decrease in both value and volume, although it is increasingly integrated in other industries.

Co-Investments:

Co-investments are becoming more and more popular and for the first time grew over US$ 30 billion. Gulf and Canadian funds were prevalent in co-investments, as well as the king of co-investment GIC, which continues to build relationships with peers.

Some co-investments were strategic in nature, with PIF notable in forging JVs to support Saudi Arabia’s economic diversification. It joined forces with Ma’aden in a mining venture, Pirelli in tire manufacturing, Hyundai in car manufacturing, and Baosteel and Aramco to build a steel mill. Mubadala was also focused on bolstering the UAE’s economic strength with co-investments with ADQ and Brookfield in Dubai-based payments provider Network International Holdings and with US-based Resilience in the biopharma sector.

The co-investment model is well-known to Canadian funds, who have pushed for co-investment rights as a way of getting direct exposure. CPP is by far the most active, but others are catching up rapidly. CPP joined GIC and Blackstone to lead a record US$ 4.9 billion loan for the buyout of European classifieds company Adevinta, with the deal also backed by PSP and CDPQ. Another consortium was formed by CPP, IMCO and OMERS to back lithium-ion battery maker Northvolt’s global expansion, adding to existing financing from Sweden’s AP1 and AP4 and the Netherlands’ APG. Sovereign investors have also combined efforts in sustainability, with GIC backing Sweden’s H2 Green Steel alongside AP2, and investing in India’s AM Green Ammonia alongside Petronas.

But not all Sovereign Investors behave the same when it comes to deploying capital. If we look at the Gulf region, some funds like Kuwait’s KIA or Dubai’s ICD prefer to invest via funds; Abu Dhabi’s ADIA is a big co-investment advocate; and others like Qatar’s QIA and Saudi’s PIF usually go alone when investing in private equity. For example, PIF preferred to invest directly – mostly in strategically important areas of the Saudi economy – from football clubs, tourism and gaming in the sports and leisure sector to construction and heavy industry. And QIA also completed several direct deals in companies at both early and later stage. Further East, Temasek turned its attention to investments in India and kept deploying capital on their own, too.

The advantages of co-investing are clear as they provide a double layer of due diligence, better fee conditions and diversification. On the minus side, some SOIs may prefer to avoid deal visibility and loss of control of the transaction to other government funds. So, while it is not for everybody, we expect to see an increasing volume of co-investments in the years to come as private equity and credit gain momentum among SOIs.

Divestments:

Sovereign Investors are generally in for the long-term but are also increasingly sophisticated, and they know to sell when they have to. In 2023, we again saw significant activity with over 40 exits.

One of the most active sellers in the past few years has been Mubadala, which divested US$ 122.7 billion between 2018 and 2022, almost the same figure it had invested. Several of these exits came from IPIC’s legacy portfolio (e.g., 37% of CEPSA, 64% of Borealis, and 25% of OMV) and ADIC’s portfolio (e.g., Chrysler building in New York, and UNB and Al Hilal, which were merged with ADCB). Other monetizations have come through the private placements or IPO of home-grown powerhouses, such as Masdar, which was partly sold to ADNOC and TAQA; Aldar, which was partially divested to Alpha Dhabi; and YahSat, which was taken public. In January 2023, the Abu Dhabi SWF completed the sale of 55% of Mubadala Health to G42 for US$ 2.4 billion.

Canadian funds were also active sellers in 2023, including OTPP’s sale of Shearer’s Food to CD&R and of SeaCube to KIA’s Wren House; CPP’s transfer of a US$ 1.5 billion buyout portfolio to Ardian; HOOPP’s exit of Champion Petfoods to Mars; or PSP’s monetization of 10% in Angel Trains to Arjun. Gulf investors reduced their long-term stakes in major listed entities, including KIA’s in Mercedes-Benz, and QIA’s in Barclays and Credit Suisse. Lastly, Greece’s Growthfund (via HSFS) monetized US$ 2.0 billion from its stakes in National Bank of Greece, Alpha Bank, Eurobank, which it bought in 2012. Piraeus Bank will likely follow in 2024.

Listed Equities:

Global capital markets were highly volatile during 2023, but most stock indices recovered significantly from the losses endured in 2022 and Sovereign Investors benefitted from the rally. Given the heterogeneity and opacity of the industry, it is difficult to generalize but we can highlight some key developments and trends.

For example, Saudi Arabia’s PIF portfolio in US equities grew 18% in 2023, mostly because of the rise in value of the existing stocks. The Saudi fund was fairly passive during the year and did not change any major position. 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 but fell markedly in 2022. In June 2023, the electric vehicle manufacturer raised US$ 3.0 billion (of which two thirds came from the SWF), as it struggles with mounting losses and tightening cash reserves, a price war led by market leader Tesla, and rising competition in China. Half of PIF’s US listed portfolio is in Consumer, including US$ 8.1 billion in gaming companies Activision Blizzard, Electronic Arts and Take-Two. Vision 2030 has allocated US$ 38 billion for the Kingdom to become a gaming hub.

Other SOIs had similar effects, with Canada’s CPP seeing its portfolio grow 21%, and Norway's NBIM, which is one of the world’s largest investors in US stocks, experiencing a 19% boost to circa half a trillion dollars.

Middle East bourses continued to thrive, although with lower levels than in 2022. In the past 12 months, we saw over US$ 10.5 billion raised in 36 IPOs that performed well when compared to other markets.  Some of the largest listings, including ADNOC Gas and L&S in Abu Dhabi, Dubai Taxi in Dubai, and OQ Gas and Abraj Energy in Oman, attracted significant capital from SOIs. The 2024 pipeline is strong across the region.

China stock markets continued to be challenged. The Hang Seng and Shanghai stock exchanges were down over -13.8% and -3.7% respectively, and most SOIs except for ADIA, KIA and Temasek have scratched their A shares program for RMB-denominated shares. In India, major indexes NIFTY 50 and BSE SENSEX were again up in 2023, with +20.0% and +18.7% respectively, and Sovereign Investors including ADIA, GIC, NBIM, and Temasek continued to increase their portfolio of Indian equities beyond private placements such as RRVL.

Returns:

SOIs report performance in a very different manner, including currencies, periods, metrics and value. If we look at annualized returns between FY13 and FY22, the best performing fund would have been NZ Super (closes year on June 30), followed by Canada’s CPP (March 31) and Sweden’s AP Fonden (six funds, December 31).  The average return of all funds, 6.6% p.a., compares with 5.0% p.a. of a 60/40 mix, and 10% p.a. of the S&P500.

The global economy recovered swiftly in 2023 with relatively strong growth and enhanced returns in capital markets. According to the OECD, global annual real GDP is forecast to grow at a slower pace in the next 12 months, +2.7%, most of which will come from Asian economies (India, +6.1%; Indonesia, +5.2%; China, +4.7%). The Fed is expected to drop interest rates to 4.6% in 2024, which should provide some relief.

Last year, we expressed concerns about a potential escalation of the tensions in Taiwan and in the South China Sea. We did not predict that a second conflict would instead happen between Israel and Hamas. Both events, together with the ongoing war in Ukraine, are taking a toll on the world’s economy and stability, and the outcome of the US Presidential Elections in November 2024 may be crucial, one way or another.

Several other countries will also undertake important elections. In January, Taiwan will pick up a new president with implications for China-U.S. relations. In February, Indonesia will choose Jokowi’s successor. In March, Vladimir Putin will likely win Russia’s elections and continue the war on Ukraine. Later that month, the world’s largest democracy may opt for the continuance of Narendra Modi. In June, Mexico will put forward AMLO’s successor for approval. And South Africa’s elections may solve – or accelerate – its downward spiral.

Presidential election permitting, Indonesia will officially transfer its capital city from Jakarta to Nusantara on August 17. This is a huge undertaking that will cost US$ 35 billion and will involve domestic and foreign institutional investors. Saudi will also continue to change at accelerated pace, with NEOM launching its own airline in 2024, and PIF pushing for the ongoing development of the US$ 884 billion giga-projects portfolio.

Governments around the world will continue to set up SWFs. Philippines’ Maharlika, Hong Kong’s HKIC, Pakistan’s PSWF, Kosovo’s SFRK and Mozambique’s FSM will be starting operations at last; while Ireland, Portugal or Sarawak may set up new vehicles. Down Under, the consolidation of superannuation funds will continue with four announced mergers that will see ART strengthen as Australia’s second largest super.

We will see at least three new offices being opened in the next 12 months: KIC’s new office in Mumbai, Temasek’s post in Paris, and HOOPP’s presence in London (the last Maple Eight to do so). Upon reelection, Modi may push the agenda for Gujarat’s GIFT City, and convince ADIA and PIF to have offices there, too.

In that context, the Gulf will surely continue to amaze us with new developments and grand plans. The formation of Dubai’s new SWF, DIF, will send shock waves and will surely attract personnel from other SWFs, just like we saw a few years ago upon ADQ’s formation. There have also been rumors of rotation of CEOs at some of the largest funds in the region, and we believe some of them may finally happen in 2024.

Lastly, Global SWF and LBS will host a new SWF Academy in London on May 20-24. Do not miss it out!

Capital Markets and Asset Allocation:

As we noted in last year’s annual report, the simultaneous decline of -10% or more in both bonds and stocks in 2022 had a significant impact in sovereign investors and changed the way they look at their portfolios’ resilience. In 2023, some funds published insightful papers while revisiting their strategic asset allocations.

Singapore’s GIC is often ahead of the pack, and it published 26 thought leadership pieces in 2023 alone. The last one has its chief economist discussing the effects of the decarbonization of the global economy, the risks of geoeconomic fragmentation and the rise of artificial intelligence. A more granular total portfolio approach, which considers both alpha and beta return drivers and merges top-down analysis with bottom-up insights, is now allowing the fund to cover a variety of risk-return profiles across asset classes and strategies.

Canada’s CPP has long followed a similar approach, and recently appointed a new head for its total fund management team, which looks after the balancing and financing portfolio, balance sheet management, tactical positioning, trading and portfolio design. The pension fund starts from a minimum level of market risk (50% global equities / 50% Canadian government bonds) and pursues “key sources of returns” including higher market risk, leverage risk and liquidity and operational risks that bring the portfolio to a risk level of 85/15.

Australia’s Future Fund has taken a total portfolio approach with a strong emphasis on diversification. This implies the manipulation of newer levers, including the search for alpha, a focus on liquidity and dynamic asset allocation, pivoting between DM and EM equities, a broader currency basket, more domestic exposure (via infrastructure), and greater weight in gold, commodities, tangibles, and alternative assets. According to the fund, this is a time for investors to challenge existing assumptions and to focus on balancing risk and return.

Its peer NZ Super has long been an advocate for strategic tilting, i.e., short-term active changes relative to the reference portfolio to increase exposure to undervalued asset classes, which has added US$ 2.9 billion since inception. The kiwi fund has defended the existence of climate alpha and is introducing a new sustainable investment strategy. It is also working on an AI-powered portfolio manager that predicts share performance and considers the entire “factor zoo” free from human biases, before it invests in the New Zealand stock markets.

Abu Dhabi’s ADIA is way too familiar with AI and machine learning by now. Over the past three years, the SWF has built an impressive team of 50+ top quant investors (“the Q-team”) that uses complex models to analyze data, generate investable ideas and review the investment decision process of all asset classes including fixed income and real estate. At the end of 2022, the Q-team established a subsidiary, ADIA Lab, that operates at arm’s length and is dedicated to basic and applied research in data and computational sciences.

Lastly, Norway’s NBIM continues to think its approach through. In 2023, it looked at fixed income and it concluded that prospective returns on long-term bonds are likely to fall short of historical performance. It also looked at the integration of real estate in a traditional portfolio, finding conflicting incentives when using relative return and risk metrics for a total return-enhancing strategy. And it found out that PE has outperformed public equities by 3%-4% on average, so it asked the MoF once again to permit investments in the asset class.

Private Equity:

The venture capital boom around the disruption of the pandemic came to an end after the Russian invasion of Ukraine as geopolitical risks and global inflation led to a more cautious approach to private equity. Sovereign investors sought to deploy capital into private equity funds and, more notably, forged alliances in mega-deals. Overall, the value of private equity deals originated by SOIs grew +4% from US$ 76.5 billion to US$ 79.4 billion.

Investments in the energy and natural resources sector doubled to over US$ 7.6 billion, while the industrial and manufacturing sector led investments totaling US$ 24.9 billion, up 27% and representing nearly 30% of total private equity investments. The trend in both sectors is aligned with the growth in investment in the energy transition, with SOIs focusing on the development of new battery technologies and low carbon processes. Allocations to healthcare continued to fall from the peak during the pandemic, when startups flourished on the back of a boom in biotech VC. Financial services also suffered a decline in interest as SOIs became more wary of banking sector risks and also sought to intervene directly in private credit markets.

While private equity investment grew, the strategies have changed markedly. Fund allocations and mandates for external asset managers can be more opaque and therefore difficult to quantify, but there are signs than the sovereign investor universe has sought to externalize dealmaking in private equity. Global SWF’s sources indicate Gulf funds are increasingly turning to external managers with existing capacity to take on capital for particular market exposures, which would take funds themselves time to build.

Added to this trend will be the rising allocation to private markets. The Norwegian parliament is due to vote by spring 2024 on whether to accept NBIM’s recommendation to invest up to US$ 70 billion in private equity. Korea’s KIC continues to target 25% of its portfolio in allocation to alternatives by 2025, up from 22.7% in mid-2023, aiming at tech, healthcare and VC opportunities. Meanwhile, Korea’s NPS is looking to diversify its portfolio under a five-year plan announced in May 2023 to increase alternative asset allocation from 14% to 15% through mandates with external asset managers. These funds indicate the direction of travel: more capital into PE, initially via funds, with the potential of turning into co-investments and direct investments over time.

The switch from VC to mega-deals saw the average value of each transaction rise 53% from US$ 229 million to US$ 351 million. SOIs co-invested to provide a double layer of due diligence, better fee conditions and advance their diversification goals. Funds seeking exposure in new markets and sectors also look to learn from more experienced players with a view to building up their own capacities and originating deals in the future. However, some funds prefer to go under the radar in their dealmaking activity or wish for full control without having to yield to the needs and sometimes conflicting approaches of other institutional investors. 

Private Credit:

Private Credit has flourished since the 2008 global financial crisis as banks became more risk averse and interest rates plunged, spurring non-bank institutions to meet unfulfilled demand from corporate borrowers.

Sovereign investors are stepping into the breach as banks have exercised caution in the face of hefty losses as default rates climb. They benefit from lower liability constraints that enable them to take on more liquidity risk than banks. Their greater risk appetite is driven by their long-term investment horizon. The asset class was notably resilient amid the pandemic with managers successfully protecting their portfolio values as well as deploying dry powder to add assets.

Backed by state-owned investors, private credit managers are filling the gap left by banks and buying debt portfolios, raising more long-term capital and providing finance for high yield non-investment grade debt that traditional bank lenders will not touch. Private credit funds had assets under management of US$ 1.6 trillion by 2022, up 53% from 2017 according to Intertrust Group. The private credit industry has grown at a rate of 14% per year on average since 2000, according to Bank of America Merrill Lynch. With traditional banks restricting lending, private credit will serve as a crucial source of financing in the economic recovery, particularly for mid-market companies.

Mubadala is one of the most aggressive investors in private credit, both through partnerships and through the purchase of equity stakes in asset managers, such as Fortress. The Abu Dhabi fund launched an alliance with private equity firm KKR in October 2022 to co-invest US$ 1 billion across performing private credit opportunities in Asia-Pacific and is deploying its capital alongside KKR’s strategies, but its activity in the asset class rocketed in 2023: in January, it formed an 80:20 joint venture with Alpha Dhabi to co-invest in private credit opportunities with plans to invest up to US$ 2.5 billion over the next five years. In March, it forged a joint venture with long-standing partner Ares to invest in global credit markets, starting with US$ 1 billion and focusing on customized liquidity solutions for credit secondaries. In September, it committed US$ 1 billion to a strategic partnership with Blue Owl Capital to co-invest in private credit opportunities.

ADIA has also sought to advance its private credit interests and in September teamed up with BCI and asset manager Centerbridge to back a US$ 5 billion private credit fund launched by Wells Fargo that will lend to midsized US companies. It also more than doubled its investment in Australian real estate private credit company Qualitas Diversified Credit Investments to US$ 0.9 billion, raising its total AuM to US$ 5.1 billion, 78% of which is private credit. Also in Australia, the country’s Future Fund bumped up credit investments by US$ 1.9 billion to take advantage of rising global interest rates and doubled its exposure to domestic corporate debt to US$ 0.7 billion as returns soared; its allocation to the asset class represented 10% of AuM.

Canadian public pension funds have also shifted strongly into private credit. OMERS teamed up with Goldman Sachs Asset Management (GSAM) to launch a separately managed account that will invest in private credit opportunities across the Asia-Pacific region. Investments target the senior direct lending, mezzanine and hybrid opportunities. The Ontario pension plan already has a high exposure to credit, with 18% of its portfolio (US$ 17 billion) allocated to the asset class.

However, funds experienced limitations in how far and fast they can allocate to private credit. AustralianSuper, Australia’s largest superannuation fund, reported that private credit comprised 18% of its portfolio, i.e., US$ 27.2 billion, in fixed income, after doubling its investment in the latest financial year. The super fund would like to go further with investment in long-term corporate debt, but CEO Paul Schroder stated that the market needed to develop to allow increased allocations, with greater co-operation between banks, insurers, funds and companies.

The strategy is likely to persist due to inflation and higher interest rates, as well as demographic trends – and sovereign wealth funds and public pension funds are positioning themselves as the new big lenders.

Ventures:

Venture capital investment by SOIs followed the global trend, falling sharply despite growing interest in AI startups. The outsized deals that characterized 2020-21 did not repeat in 2023, as doubts arose over past sky-high valuations. Public market volatility also added to uncertainties over exits. Funding activity fell across all stages, particularly early-stage rounds, and some SOIs were divesting on secondary markets amid the overall trend that saw sellers cut their losses and offer some assets at lower valuations.

Despite the strong interest in AI and machine learning in 2023, VC investment in technology fell -74% from 2022. Having represented 23% of total PE deal value in 2022, in 2023 the sector contributed just 6%. Tech was displaced by VC in emerging market finance and retail startups, which sustained the momentum of the pandemic when e-commerce in larger markets such as India, Indonesia and Malaysia shifted up a gear. Another area that drew interest was industrial startups, principally those involved in energy transition, such as batteries, renewables and mobility solutions. Yet, all market sectors saw a decline in VC funding by SOIs.

Global SWF data found SOIs that had been active VC investors during the pandemic years, such as the VC units of Temasek, Mubadala and OMERS, were far quieter in 2023. Overall, VC investment value fell from US$ 17.8 billion to US$ 4.6 billion. The decline was in line with deal data globally, as European startups found it hard to exit or land deals at valuations they could accept while investors became nervous over risks.

For instance, OMERS Ventures quit Europe in 2023, four years after opening its London office and allocating US$ 332 million to the region. The reason was not just the lack of opportunity in the European VC market but reportedly the challenges of originating deals alone – a factor that prompted other sovereign investors to invest in private equity funds and abandon deal origination as sole limited partners.

Canadian peers CPP, CDPQ and BCI also divested chunks of their PE portfolios to free up liquidity towards new priorities, as well as taking advantage of a revival of interest in private equity to rebalance their portfolios. CPP sold US$ 1.5 billion of secondary investments in 20 private equity funds to Ardian; CDPQ offloaded up to US$ 2.0 billion in secondaries, and BCI was also looking for buyers for US$ 2.0 billion of private capital assets to gain some dry powder for more direct investments, including co-investment opportunities.

While divestments of more opaque SWFs were tougher to track, Global SWF’s sources suggest that Canadian public pension funds were not alone in seeking opportunities to rebalance portfolios and restrain their exposure to venture capital, particularly as secondary markets pick up.

The VC drought is likely to be temporary with signs in late 2023 of renewed interest in investing in startups oriented towards AI, sustainability and the energy transition, particularly EV infrastructure and batteries. Lower values and hot themes will intensify interest going into 2024. Yet, this interest will not be at the expense of other private equity strategies with funds seeking further diversification, as well as increased exposure to mega-trends, to boost long-term returns using the full range of private equity strategies.

Real Estate:

Real estate investment by SOIs softened in 2023 amid concerns over the bursting of a property bubble as interest rates were hiked worldwide, although some segments continued to witness growth as Sovereign Investors oriented their portfolios towards megatrends, notably data centers and affordable housing.

Decades ago, real estate investments by SWFs were dominated by Middle Eastern investors snapping up trophy assets, such as luxury hotels and skyscrapers. Today, the industry is more sophisticated, examining how to expose their real estate portfolios to mega-trends, such as the development of the digital economy and tech disruption. In 2023, data center investments by SOIs grew 150% to a record US$ 7.6 billion. Investments included OTPP’s participation in a consortium to acquire Compass Datacenters for US$ 5.7 billion. AusSuper invested US$ 1.7 billion in Vantage EMEA, to focus on hyperscale data centers across EMEA. And PIF and NIIF formed partnerships with DigitalBridge and Digital Edge to develop data centers in their respective economies.

Residential real estate is less popular due to high borrowing costs, and SOI involvement fell two thirds from the 2022 peak, with a perceptible shift towards multi-family housing and build-to-rent. Some examples include a US$ 0.4 billion social impact platform by Dutch funds Bouwinvest, ABP and bpfBOUW, and OTPP’s Cadillac acquisition of Lincoln Property company in March. In the Middle East, Dubai Holding forged a deal with Aldar to develop new properties across prime locations in Dubai. And Mubadala teamed up with Proprium Capital and Samurai Capital in Japan to form a US$ 0.6 billion JV focused on sustainability and affordability.

Although hybrid working returned people to the office after the pandemic, SOIs stepped back from the segment and investment fell -27% to US$ 9.3 billion. The US drew the bulk of interest from North American pension funds, while India presented opportunities for SWFs. GIC is among the leading investors in the Indian real estate market and in 2023, it signed a US$ 1.4 billion JV with Brookfield India REIT to build two large commercial office assets in Mumbai and Gurugram and a US$ 141 million purchase of an IT-SEZ in Hyderabad.

In 2023, hotels investment by SOIs rose 8% to US$ 4.7 billion, the highest level since the onset of the pandemic. The biggest transaction was GIC’s investment in Spanish hotel group Hotel Investment Partners from Blackstone for US$ 1.5 billion, which came a year after the US$ 1.3 billion injection in Greece’s Sani/Ikos and confirmed the Singaporean fund as a heavyweight player in European tourism. This contrasted with retail and commercial real estate, where SOIs drastically cut back exposure and continued to focus on e-commerce.

Finally, interest in logistics real estate also decreased save for some exceptions. GIC bought six logistics assets in Japan for US$ 0.8 billion, which builds on the portfolio it bought from Prologis in 2008. It also won a tender for the first logistics area at Spain’s Barajas airport and invested US$ 0.2 billion in Brazil. CDPQ’s Ivanhoé and Temasek’s Mapletree backed a US$ 1.8 billion tech-focused Indian real estate platform. And Indonesia’s INA joined ESR Group to develop US$ 1.0 billion of logistics assets in Indonesia over five years.

Infrastructure:

The total value of infrastructure deals by SOIs in 2023 declined -51% to US$ 37.4 billion, largely due to a decline in investment in transportation. One marked trend was the growth in oil and gas infrastructure, even as renewables maintained momentum. A consortium including GIC, Mubadala, GIP and TotalEnergies invested US$ 5.9 billion in the development of three liquefaction trains in phase one of NextDecade’s Rio Grande LNG export facility in Brownsville TX, Texas. CPP also invested in US natural gas production with the acquisition of Aera Energy, California’s second-largest O&G producer with nearly 25% of the state’s production.

Renewables investment held up with India drawing a lot of attention, including Mahindra Susten (APG and BCI), ReNew Power (CPP), Adani Green Energy (QIA), and Greenko (ADIA and GIC). Australia’s potential in green ammonia encouraged interest, and so did European offshore wind, especially from NBIM as it ramps up its profile. Canada’s IMCO and PSP were also active with the takeover of Germany’s NeXtWind Capital. Investment in utilities dropped by half in 2023 to US$ 7.5 billion. SOIs continued to pump money into the UK’s troubled Thames Water, while QIA bought a 4.2% stake in the London-listed Severn Trent water utility. GIC was also active with a US$ 2.0 billion advanced metering infrastructure service provision in India with Genus.

SOI direct investment in transportation averaged c. US$ 18 billion annually between 2018 and 2022, but 2023 saw a significantly reduced allocation. The pandemic-related support for domestic flag carrier airlines has now ended and there was a dearth of aviation assets on the market, although PIF managed to acquire 10% of London Heathrow and StanChart Aviation Finance for US$ 3.6 billion. Seaports also saw slow activity, except for DP World, which invested in Evyap Port in Turkey and Kandla in India for more than US$ 1.2 billion.

Investment in roads continued to be dominated by India and Indonesia. In the former, CPP and OMERS pumped more capital into IndInfravit Trust by buying a portfolio from Brookfield in a deal valued at US$ 1.2 billion, and BCI and Mubadala backed a US$ 0.6 billion raise by Cube Highways to take a pipeline of seven highways. In the latter, GIC snapped up a 33% stake in toll road operator Margautama Nusantara and INA completed two sections of its trans-Sumatra toll road infrastructure for US$ 1.4 billion.

Finally, there was a lower level of transactions in digital infrastructure in 2023, although this does not indicate a decline in appetite for investment. Australia’s UniSuper bought a 5% stake in Vantage Towers from Korea’s NPS; Mubadala invested US$ 0.5 billion in US fiber operator Brightspeed; and AIMCo backed the US$ 0.8 billion Seraya Partners Fund I, an Asia-focused PE fund investing in digital infrastructure and renewables.

Going forward, SOIs will be examining opportunities in the renewable energy sector, energy transition and digital infrastructure, but traditional infrastructure assets will not be neglected either. Infrastructure can generate a long-term cashflow, particularly toll roads and utilities where charges are usually inflation-indexed. Governments will be courting sovereign capital, which has the patience and scale to overcome entry barriers.

It has been over 25 years since Norway’s Parliament passed a law to establish the Government Pension Fund-Global (GPFG). The plan was to regularly transfer capital from the government’s petroleum revenue to the fund. It was decided that the fund should be managed by Norges Bank Investment Management (NBIM), the asset management division of Norges Bank, the Norwegian central bank.

Since then, NBIM has become the ultimate benchmark of good governance, radical transparency and responsible stewardship among SWFs and other asset owners globally. Its website features a dynamic counter that allows the visitor to know the market value of the fund at any point in time, according to the fluctuations in global financial markets. This is in an industry where the exact AuM of five of the Top 10 SWFs is unknown.

As of September 30, 2023, NBIM managed approx. US$ 1,379 billion in investments. Half of this capital came via net flows from the government and via currency differences. The other half, via investment returns. For the past 25 years, the fund has added value by averaging +6.0% nominal return (or +3.7% real return) and +0.3% alpha over its benchmark. During the same period, the Norwegian economy grew on average +1.8%.

Such growth in market value and the fund’s appetite for listed equities globally made NBIM, with a portfolio of stocks valued at c. US$ 1 trillion, the largest single owner in the world’s financial markets, owning almost 1.5% of all shares in the world’s listed companies and holdings in more than 9,200 companies.

In 2022, the fund suffered the second largest investment loss in its history, -14.4%, due to its significant exposure to financial markets. However, the loss was cushioned by the largest injections ever received within a year, US$ 125 billion. As of September 30, 2023, the fund had already recovered investment gains, with a +7.6% return in calendar-year-to-date and an additional US$ 49 billion received from oil surplus. This is exactly the amount that the government had withdrawn in 2020/21, proving the benefits of its stabilization function.

Lastly, the fund continues to make strides in responsible investing. In 2023, it invested over US$ 1 billion in renewable energy, it placed nine entities under exclusion or observation for their non-ethical conducts, it published updated expectations to companies on climate and a global framework to tackle nature-related financial risk, and it committed to lead investors’ action related to Silicon Valley Bank (SVB)’s Collapse.

A robust and efficient platform:

NBIM has evolved significantly as an organization since it was established in Oslo in 1998 with 41 employees. Given its position as global equity investor, the fund has opened overseas offices that cover all time zones:

• The London office was opened in 2000 and has grown to 119 staff. In 2015, the fund bought the building that hosts it in Mayfair, Queensberry House, for US$ 287 million from Italian group Sorgente.

• The New York office was set up in 2003 and is now at 83 staff pursuing fixed income, equity, and real estate investments. In 2015, NBIM signed a 10-year lease for three floors at 505 Fifth Avenue, near Bryant Park.

• In 2007, an office was opened in Shanghai shortly after the fund obtained its QFII license. However, the fund decided to close the post in 2023 and consolidate its office in Singapore as the hub for its operations in Asia.

• The Singapore office was opened in 2010 and has grown to 50 employees that serve the broader Asia.

• Luxembourg (2011), Tokyo (2015) and Paris (2016) smaller offices are solely focused on RE investments.

Today, 47% of NBIM’s employees are based away from Oslo headquarters – the highest proportion among SWFs. In addition, the fund employs 35 nationalities, one of the most diverse mixes, only behind that of Abu Dhabi’s ADIA (65 passports), Qatar’s QIA (61 passports), and Singapore’s GIC (45 passports).

Given its voting activities, gender balance is also an important metric for NBIM, whose share of female employees was 29% at the end of 2022 – 2% higher than a year before but still far from the 40% target. Five of the 11 members of Norges Bank’s Executive Board and six of the 12 members of the Leader group are women.

The organization follows a similar structure to other SWFs, with separate departments for investment and support, and different CIOs for each asset class. The fund used to have a dedicated subsidiary for real estate investments, NBREM, but in 2019 it decided to discontinue it and to integrate it with the main operation.

In 2022, NBIM spent US$ 2.9 million in remuneration costs, i.e., 0.2% of its AuM, compared to 0.04% in management costs. Senior Management has stopped receiving performance-based pay, and Nicolai Tangen, CEO of the fund since 2020, received less than US$ 0.7 million, well behind the CEOs of other SWFs globally.

For its 25+ years of global investing and stewardship, for its position as one of the world’s largest and most influential universal asset owners, for its significant activity across asset classes and industries in 2023, and, more broadly, for its leadership among Sovereign Wealth Funds and contribution to the advancement of the industry, Global SWF believes that Norges Bank Investment Management (NBIM), on behalf of the Government Pension Fund Global (GPFG), is a worthy recipient of the 2023 Fund of the Year award. We were delighted to present it to Daniel Balthasar and Pedro Furtado Reis, the Co-CIOs of the US$ 1 trillion listed equities portfolio, and to speak with them about the fund’s recent evolution and ambitions.

[GSWF] In the past 25 years NBIM has tripled the money it has received, with a 6.0% return and 0.3% alpha p.a. What is the fund’s secret sauce, and what is the target return in the medium to long-term?

[NBIM] We are blessed with a number of conditions, including our very long-term horizon and low short-term liquidity needs, which allows us to pursue opportunities others may not be willing to; and our size with a very large portfolio but lean headcount and low operational costs, which allows us to be agile and innovative. We are an engaged owner with close contact with senior management and the Board of the companies we invest in, which allows us to create alpha over time. As per targets, we aim at reaching the highest possible return at the lowest cost and with an acceptable risk.

[GSWF] Some analysts believe that GPFG has grown “too much”, which may prevent it from moving more swiftly across asset classes. Do you think the fund should be split in smaller pockets or distribute dividends?

[NBIM] The mandate is set by the Ministry of Finance and specifies what asset classes we can invest in and what our benchmarks should be. All large decisions are anchored in Parliament. This ensures we are very aligned with the Norwegian citizenry and has worked very well for us.

[GSWF] NBIM was recently asked to give advice on whether Private Equity should be included as an asset class in its mandate. What do you think about this possibility, and do you think it will materialize soon?

[NBIM] We provided our response to the Ministry of Finance on November 28, and they will now come with a proposal through a white paper by April 2024. After that, it is up to the Parliament to decide. As we write in our letter to the Ministry of Finance, a mandate to include Private Equity in our portfolio would be a natural evolution for NBIM, and one that would allow us to capture opportunities that we are not able to now. There is a growing share of value creation that is not captured in public markets, and if we are a large, global investor in Equities that is not in that segment, we may be missing out. We believe that entering into PE would allow us to generate higher returns over time without detracting from our  transparency and responsibility efforts, as the PE industry itself has been moving in that direction over the years.

[GSWF] The two of you manage one of the world’s largest portfolios of equities, at circa US$ 1 trillion. How do you manage such large portfolio with such little headcount?

[NBIM] We are a very large asset owner, but with a very lean organization. Our investment strategies are grouped in three main categories: (i) market exposure; (ii) security selection; and (iii) fund allocation. We are responsible for the security selection, both equity and credit, and manage about 100 investment professionals. Our investment strategies operate under a delegated mandate structure, where portfolio managers are organized by (seven) sector groups and a number of cross-sector mandates. It’s a Portfolio Manager-centric model with the person with in-depth knowledge of companies is the one taking the investment decision. Our investment processes build on the fund's unique characteristics and competitive strengths. Central to these is our direct access to our portfolio companies. We train our teams to being able to maintain and nurture strong relationships with major companies in each industry. The team is fully accountable for their investment decisions, and that provides alignment with the fund’s mandate.

[GSWF] You are currently invested in equities of 63 countries. Can you describe your fundamental research and stock selection process? Does geopolitics play a role in your ability to invest in some countries?

[NBIM] In our area, we run fundamental security selection processes. In addition, we developed a proprietary investment decision support tool. This allows us to learn from mistakes, build on our strengths and over time improve the quality of our investment decisions. Our mandate states which countries we can invest in, and geopolitics is a risk, among many others, that our Portfolio Managers need to evaluate when taking investment decisions.

[GSWF] In the past 25 years, the weight of European equities has dropped from 52% to 30% to the benefit of American stocks. Is the regional split of your portfolio mirroring that of FTSE Global All Cap?

[NBIM] It does not have to mirror the benchmark, but it follows it closely. We keep the benchmark in sight but avoid mechanical replication of indices because of the high trading costs it would imply. In addition, the in-depth knowledge of industries and companies underpinning security selection will steer us, at the margin from one region to the other over time, depending on the relative attractiveness of the investment opportunities.

[GSWF] Similarly, we have seen Tech / Telecom and Healthcare grow on percentage basis in the past few years. Which industries do you believe present the best prospects in the current environment?

[NBIM] Technology and Healthcare have indeed been the most significant investment sectors this year because of the mainstreaming of artificial intelligence and the emergence of anti-obesity drugs. We state in our Strategy 25 that we will take sector risk when risk-reward is particularly attractive and use our specialist knowledge that identify trends that make us expect higher long-term returns in some sectors. This may feel contrarian at times, and we want Portfolio Managers to feel safe when taking risk, so we have brought in two external specialists in sports psychology and team performance to support the organization.

[GSWF] NBIM maintains a dynamic list of exclusions based on non-ethical behaviors. Is the fund trying to increase its engagement with investee companies? How is ESG integrated in Listed Equities?

[NBIM] Decisions on exclusions are taken by the Executive Board of Norges Bank after recommendations from the Council on Ethics, an independent body. Then we have the active risk-based divestments that we may decide to make if the companies’ activities are exposing us to unacceptable risks, but we usually engage with those entities before we divest in them. In terms of ESG integration, our lean team allows us to increase engagement and governance.  In addition, ESG considerations are fully integrated into our investment decisions. Our Portfolio Managers collaborate very closely with our Investment Stewardship teams. We are strong believers in engaging to change, and for that we need to stay invested, especially in major companies that pose material risks. An example of our work in ESG is climate risk, which is aligned with financial risk. We monitor progress and use voting actively to make our voices heard.

[GSWF] The employees working away from the Oslo headquarters represent almost 50% of the total now. Do overseas offices make economic sense, and where do you see NBIM opening a new post?

[NBIM] We do believe overseas offices make economic and business sense because we are a global and very large asset owner investing in all markets, across time zones. In that context, we are very comfortable with our exposure to international markets through our offices in New York, London and Singapore, and our real estate offices in Paris and Tokyo. There are no plans to open any additional office at the moment.

[GSWF] You both represent a rare case of non-Norwegians among NBIM’s Leader Group. What do you think has contributed to your rise in a foreign SWF, and what advice would you give to young professionals reading this piece and starting their careers in investment management?

[NBIM-PFR] We take pride in being part of an organization that promotes diversity in thinking and different perspectives to make better investment decisions. We are very global with over 600 people of 35 different nationalities, so it is just natural that the leader group has global representation, too. In terms of our journey, I have been at NBIM for 12 years and Daniel has been here 17 years, and we are able to work well together because we share the same principles and approach, and we enjoy managing investments but also people.

[NBIM-DB] From my perspective, we have been so long at NBIM because we do believe it is the best place to be in asset management. If you are passionate about fundamental bottom-up investment, there is no better organization to be at. Our advice to young people: try and find something you are passionate about, and go the extra mile and work hard at it. I also believe it is important to be somehow humble and patient, so do not expect to run an organization tomorrow!

An increasingly global and diversified portfolio:

The evolution of NBIM in the past 25 years is typical for a universal asset owner with a conservative risk profile and liquidity constraints. The fund introduced unlisted RE (up to 7% of its portfolio) in 2010, infrastructure for renewable energy (up to 2%) in 2020 and may get a mandate to start investing in PE (3-5%) in 2024.

An increasingly America-weighted equities portfolio:

In the past 25 years global indices have increased their weight in US equities and decreased it in UK and Japan. Today, the FTSE Global All Cap Index, which NBIM uses as benchmark of equities, has 61% weight in the US. Since 1998, NBIM has reduced its weight in European equities from 52% to 30% of its portfolio and increased it in North American equities from 31% to 46%. The stakes in the so-called Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, and Nvidia) represented 8.7% of NBIM’s overall portfolio as of June 30, 2023.

An unparalleled responsibility – and influence:

NBIM enjoys a privileged position as one of the world’s largest universal or global asset owners. The fund holds on average 1.5% of all listed companies and is invested in more than 9,200 companies worldwide, which allows it to have a unique overview and saying in these companies through the exercise of its voting rights.

In 2022, NBIM voted on 117,392 resolutions at 11,616 shareholder meetings. The vote was “for”, i.e., in line with the board’s recommendation, in 94% of the cases and in 70% of the meetings. However, the Norwegian fund voiced its concerns and voted “against” in 6% of the resolutions, due to the following reasons:

The Norwegian SWF has divested in 440 companies since 2012 and maintains an active list of exclusions of observations of companies based on the guidance of the Council on Ethics. As of November 2023, the list contains 185 entities based on conduct (environmental damage, violation of human rights, war/conflict-related violations, or corruption / financial crimes) or product reasons (coal, tobacco, weapons, or cannabis).

However, risk-based divestment is a last resort, as part of the ESG risk-monitoring process. NBIM may decide to divest from a company if it does not have credible plans for reducing its ESG risks; if the size of the investment is relatively small; and/or if other tools, such as dialogue and voting, are unlikely to be a success:

NBIM brought up topics related to Environmental, Social and Governance (ESG) in 66% of its meetings with companies in 2022 and continuously monitors the work in progress of its portfolio. Around a sixth of its companies have net zero 2050 targets, and 6% of the equity portfolio is invested in climate solutions.

As a reflection of its efforts around Responsible Investing, our latest GSR Scoreboard ofJuly 2023, gave a score of 8/10 to NBIM in the Sustainability elements. However, the two missing points do not really apply to the fund given its lack of domestic mandate and would have been granted if we considered GPF a single SWF.

The recently finalized COP28 showcased Sovereign Investors’ approach to sustainability, with the UAE launching a US$ 30 billion climate focused investment fund with backing from BlackRock and several SWFs. The energy transition agenda is being delivered across asset classes, from basic resources (lithium mining) to infrastructure (renewables, green hydrogen) to industrial development (giga-factories, electric vehicles) to venture capital (new battery technologies, low carbon industrial processes). Sovereign Investors are looking to gain exposure to all segments as well as greening existing “black” assets through decarbonization.

Leading alliances with other institutional investors (particularly with Canadian PPFs), Singapore’s GIC aggressively pursued its green energy agenda in 2023, maintaining a leading position with US$ 3.2 billion deployed into the sector, almost matching the level in 2022. Its sister organization Temasek focused on start-ups with new technology to advance renewables, batteries and low carbon industrial processes. Gulf funds also focused both on strategic investment in domestic renewables capacities and on yield-generating assets abroad, with Mubadala leading the way through the Masdar platform as well as directly.

Europe has offered the bulk of opportunities as governments seek to meet ambitious net zero targets through attractive incentives, although SOIs have largely focused on mature assets. NBIM continued to pursue big ticket transactions for European renewables as it aimed for a 2% allocation. Canadian funds PSP and IMCO backed NeXtWind Capital; GIC took a 5% stake in Spain-based EDP Renováveis for US$ 1.0 billion; and CPP increased its support to Octopus Energy and committed US$ 0.9 billion to Renewable Power Capital (RPC).

India has long been a target of SOI investment in renewables and 2023 was no exception. Delhi plans to install 450GW of renewable energy capacity by 2030 and is relying on patient capital from sovereign investors including Canadian PPFs and Abu Dhabi and Singapore SWFs. ADIA and GIC boosted their investment in Greenko in a US$ 0.7 billion capital raise; BCI and APG backed Mahindra Susten, which has nearly 6GW of generation capacity; and QIA took a 3% stake in Adani Energy. Other SOI-backed Indian renewables platforms include Azure Energy (OMERS, CDPQ), ReNew Power (CPP, ADIA) and Tata Power (Mubadala).

The interest in green hydrogen is also high, as it could provide the feedstock for ammonia and methanol production and revive the chemicals chain, while being de-linked from the oil and gas sectors. GIC backed a major green ammonia plant in India, partnered with co-investors in Australia’s hydrogen sector, snapped up a stake in InterContinental Energy, and joined Copenhagen Infrastructure Partners in backing a green bond issue by TagEnergy of up to US$ 0.6 billion to fund renewables and battery storage in Australia, the UK and Europe.

Bio-based fuels also drew interest, with OTPP committing US$ 0.3 billion to a JV with Sevana Bioenergy to develop renewable natural gas projects utilizing organic waste; and Mubadala’s Acelen using its Mataripe refinery site in Brazil as host to an innovative US$ 2.5 billion push into cleaner aviation fuel from oils derived from soybean, palm and macauba oils. Instead of simply divesting carbon intensive assets, Canadian PPFs have looked to greening them. CPP partnered with IKAV to acquire Aera Energy, which represents 25% of California’s oil and gas production with a view to expanding its renewable energy portfolio.

The automotive industry is also an area where SOIs believe they can make an impact. Swedish lithium-ion battery maker Northvolt received the support of several funds including IMCO, OMERS, APG, AP1, and AP4, and in Indonesia, INA launched a US$ 2.0 billion green fund initiative, to help position Indonesia as a major player in the EV market and add value to its massive nickel reserves.

Saudi Arabia has led the way in investing directly in the manufacture of EVs and the entire automotive value chain. PIF began its involvement in Tesla rival Lucid in 2018 when it invested US$ 1.0 billion, and has continued to pump capital into the EV maker since its IPO in 2021, with the goal that Lucid begins producing EVs in the Kingdom from 2025. In addition, PIF launched its EV carmaker, Ceer, in a JV with Taiwan’s Foxconn, and has also signed partnerships with Tasaru (component localization); Hyundai (car plant); and Pirelli (tires). But it is not the only Gulf fund making strides in the space, as ADQ financed an investment of Abu Dhabi’s Department of Finance into Chinese EV manufacturer NIO Inc. for US$ 3.0 billion in July and December 2023. Lucid and NIO are among the world’s top 5 EV manufacturers, together with Tesla, Li Auto and Rivian.

All in all, Sovereign Investors invested, once again, more in the so-called green assets than in the so-called black assets in 2023, reaching a historical maximum of US$ 26.1 billion in the support to companies related to the energy transition, including renewable energy, battery storage and electric vehicles.

Gulf SWFs were responsible for almost half of that figure, and are pushing the energy transition agenda and recycling revenues from black assets into green impact investments, particularly in their own backyards. Canadian, European, Singaporean, and Australian funds are also freeing up plenty of dry powder to plunge capital into achieving their net zero ambitions, with the rest of the funds set to join them in co-investments.

GSR Scoreboard:

The GSR Scoreboard was first introduced by Global SWF in 2020 as an assessment tool of state-owned investors, including sovereign wealth and public pension funds, around their transparency and accountability (Governance), responsible investing (Sustainability), and legitimacy and long-term survival (Resilience). In its fourth edition, the system is now embraced and recognized as a key metric by funds and experts alike globally.

Unlike other systems and principles, the scorecard is designed to be fully independent (we are not paid 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 5 to resilience, which are answered binarily (Yes/No) with equal weight and converted into percentage points.

The results of the 2023 GSR Scoreboard were remarkable, with a steep increase in the overall score from 59% in 2022 to 63%. The improvement is most apparent among SWFs, which are catching up quickly with PPFs; and around sustainability, as funds are increasing their impact activities and reporting them in a regular and meaningful way. The overall ranking was led by Temasek, the largest investor among those achieving a 100% score, and a highly regarded role model sought after by governments across the world. Other funds with full marks included 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 is an example of good practices in a challenging environment. We had the chance of discussing the results with Temasek and published the interview in our report, which can be accessed at https://globalswf.com/reports/2023gsr.

We expect to start collecting information for our next round of assessments in March-April 2024, and to share the preliminary results with all Top 200 funds in mid-May. The report will be released on July 1, 2024.

One of the key consistent themes of the year when it comes to Sovereign capital has been the prominence of investors from the Gulf Cooperation Council (GCC), i.e., Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain. In 2023, the AuM of SWFs in the region reached a historical peak of US$ 4.1 trillion, and the transaction value, even if slightly lower than in 2022, amounted US$ 82.3 billion, led by the so-called “Oil Five” (ADIA, Mubadala, ADQ, PIF, QIA). By 2030, the group of 19 Gulf SWFs could reach US$ 7.6 trillion in assets, and if we add the pension funds and central banks in the broader MENA region, that figure could balloon to US$ 11.2 trillion.

One obvious reason is the sustained high level of oil prices: Gulf SWFs have reaped the rewards of the fiscal windfalls and recovered quicker than others from the 2022 financial markets debacle. The other reason is the maturity of the investment landscape, with a wide range of players entering domestic and global markets with a level of sophistication never seen before. This has fueled economic diversification, which is expected to push GCC’s growth to +3.6% and +3.7% in 2024 and 2025, respectively, according to the World Bank.

Geopolitics matter in the GCC more than anywhere else and must be understood. Qatar’s economy has benefitted from the end of the blockade and better relationship with its neighbors. The UAE has undergone profound changes since the demise of Sheikh Khalifa in May 2022. In Saudi, the rise of PIF is intrinsically linked to the rise in power of MbS. And Kuwait continues to struggle with the coexistence between hadar and badu and continuous disputes in the National Assembly that have impacted the work and potential of KIA and PIFSS.

The SWF industry in the GCC is anchored by its three largest players that are well over 50 years-old: Kuwait’s KIA (1953), Abu Dhabi’s ADIA (1967) and Saudi Arabia’s PIF (1971). However, there is no shortage of capital beyond them, and there are always new funds and developments that keep things interesting. The inflow of foreign investors working in the region has accelerated, and managers and advisors fly in from around the world every year to attend conferences and meetings, notably between the months of October and March.

The following five pages shed a light on some of the key areas that we believe are shaping investment management in the region: (i) the different ways sovereign capital is managed across GCC countries; (ii) the rise of the so-called private offices; (iii) the culture of national champions; (iv) the stock offerings in domestic exchanges; and (v) the geopolitics and support within the GCC and beyond.

Abu Dhabi vs Saudi Approach:

If we look at how capital is managed across the GCC, we see two key approaches. In the Abu Dhabi approach, the government creates different SWFs for different missions, under different royals (see next page).

Historically, ADIA was the only proper sovereign investor, since its early inception in London in 1967. In 1984, ADIA created a joint venture with ADNOC, which they called IPIC, to pursue acquisitions overseas – a new kind of strategic fund. This was followed by Mubadala (exchange), which aimed at attracting know-how to the Emirates. And, in 2007, ADIA stripped off its domestic investments into ADIC, which was also financially-driven. Four very different SWFs that co-existed for years until the consolidation of 2016-2018.

Fast-forward to today, and ADQ has emerged as another, very active and versatile strategic investor. But the principle remains the same – different SWFs to cover all bases without, theoretically, overlapping with each other, and different accountability and reporting lines. Elsewhere in the Gulf, the Abu Dhabi approach is followed by Dubai, which lacks an ADIA-like fund because of its more limited oil reserves but has various strategic funds; and by Bahrain, which runs separately the FGR (future fund) and Mumtalakat (strategic fund).

The second approach is the one seen in Saudi Arabia, in which the government consolidates all investment and strategic efforts, and its vision, into a single umbrella, in this case, the Public Investment Fund (PIF).

PIF was actually born in 1971 and is the Gulf’s oldest SWF in its present form and name. However, it was conceived as a development fund that would only support Saudi companies, while the central bank SAMA ran the country’s de-facto SWF with its portfolio of foreign holdings. That all changed in 2015, when PIF was transferred under the Council of Economic and Development Affairs (CEDA), chaired by Crown Prince MbS.

In the past eight years, PIF has become one of the world’s most active (the most active in 2023!) SWFs both at home and overseas, and is a key enabler of the country’s Vision 2030 and transformation. Further, its leaders have no problems in announcing grand plans for the SWF, in using it in its name to buy football clubs or golf leagues, and in sharing its finances publicly given its fundraising efforts, in a rather refreshing fashion.

In 2017, Riyadh set up a second fund, NDF, that would support PIF’s push for Vision 2030, but with a much more domestic and low profile, so many analysts still consider PIF the only “pure SWF” in the Kingdom. Elsewhere in the Gulf, the Saudi approach is followed by Qatar, which consolidates all its efforts under QIA; Kuwait, which does the same with KIA and its entities; and Oman, which merged its two funds into OIA in 2020.

The blurry lines between Sovereign and Family Capital:

The Arabian Gulf has always been characterized by the blurred distinction between the capital of the nation (i.e., the sovereign funds) and that of the royal family (i.e., private offices). In Qatar, Sheikh Hamad bin Jassim (HbJ) served as Prime Minister of the country and CEO of QIA while managing his own portfolio. In 2013, one of his personal entities, Constellation Hotels, went on a shopping spree for several luxury hotels across Europe, months before he was relieved from his post at the SWF upon the abdication of his cousin the Father Emir, HbK. In Saudi Arabia, Prince Alwaleed invested for almost four decades through his private office, Kingdom Holding, before it was partially acquired by the country’s sovereign wealth fund, PIF, which is chaired by his cousin MbS.

However, the UAE has taken the intertwining of family and state wealth to the next level. Two of the full brothers of its President Sheikh Mohamed bin Zayed (MbZ), Sheikh Mansour and Sheikh Tahnoon, run two of the world’s most prominent family offices. The former chairs Abu Dhabi United Group, the entity that first came to light when it bought Manchester City in 2008. The British football club is presided over on behalf of ADUG by Khaldoon Al Mubarak, who is also the CEO of Mubadala, a SWF under Sheikh Mansour’s ambit, too.

Older brother Sheikh Tahnoon manages what is likely the world’s largest portfolio at US$ 1.6 trillion. In addition to SWFs ADIA and ADQ, he heads the far-reaching Royal Group, which is said to function as the de-facto private office of the Al Nahyan family. Some of the subsidiaries, including IHC, Alpha Dhabi, Multiply and Chimera have become active dealmakers in the UAE and beyond. During COP28, the UAE announced a new US$ 30 billion fund Alterra, which will be managed by Lunate, a JV of ADQ and Chimera, all under Sh. Tahnoon.

Just to add another layer of complexity, a separate entity called CYVN invested in 2023 c. US$ 3 billion in Chinese electric vehicle manufacturer NIO. CYVN is directly under the Department of Finance, and could therefore be considered a SWF by itself, but it turns out that it borrowed the money to pay for NIO from ADQ.

Neighbor Dubai does not necessarily make it simple for analysts either. Dubai Holding has long been considered the private office of ruler Sheikh Mohammed bin Rashid (MbR), but there have been discussions to make it more international, diversified, and “SWF-like”. Additionally, the government announced in December 2023 a new investment fund, DIF, to be formed under the remit of MbR’s son Sheikh Maktoum (UAE’s Minister of Finance) and potentially replace Dubai World as an umbrella entity, absorbing DP World. Older son and Crown Prince Sheikh Hamdan, Fazza, manages the larger SWF, ICD, and, yes, his own private office, too.

National Champions:

Saudi Arabia is developing a range of national champions to advance Vision 2030. PIF has established subsidiaries ranging from agriculture to finance, from industry to infrastructure. Central to the PIF-led development program is its multi-billion giga-projects, which all have an element of tourism: NEOM, including the Line, Oxagon, Sindalah and Trojena; Red Sea Global; Qiddiya; Roshn; and Diriyah. At present, their value is not capitalized, but when they are completed by 2030, they should boost the fund’s AuM by tens of billions. The fund also operates several subsidiaries including Sanabil, TAQNIA, Jada Fund of Funds, and STC Ventures that are building their own impressive portfolios, and a 17% stake in Prince Alwaleed’s Kingdom Holding.

An array of in-house businesses have been established across the entire economy as part of an overall strategy to “crowd in” private sector investment, increase local content spend by portfolio companies, increase skills and capacities of local suppliers, and bolster local supply chains. In transportation, PIF launched a US$ 30 billion airline Riyadh Air and is building up its own electric vehicle brand Ceer. In industries, it acquired the Saudi Iron and Steel Company (Hadeed) for US$ 3.3 billion. And in sports and entertainment, it continues to pursue global portfolios of gaming, golf and football, which it seeks to use as a base for domestic initiatives.

Other Gulf states have looked to consolidating state-owned assets ahead of public listing to drive private investment. Abu Dhabi has mandated Mubadala and ADQ to manage a portfolio of national champions, mostly in infrastructure and energy. The listing of the utilities and energy champion TAQA boosted ADQ’s value, but the fund’s non-TAQA portfolio has also increased from an estimated US$ 36 billion at inception to US$ 115 billion in 2023. Among those assets received in the past two years are waste manager Tadweer and domestic carrier Etihad, which sustained significant losses before and during the pandemic.

In December 2023, ADQ raised US$ 1.0 billion in the listing of PureHealth, which was formed from the consolidation of the fund’s healthcare assets, including SEHA, Daman, Tamouh, Yas Clinic, and Abu Dhabi Stem Cell Center. This portfolio was expanded with the acquisition of UK-based Circle Health Group. Mubadala has also built a strong healthcare portfolio through Mubadala Health, which it partially sold  to Sheikh Tahnoon-chaired G42, in the launch of M42. Another focus of ADQ is aviation, and the fund integrated Etihad in its aviation portfolio to bolster vertical integration, improve profitability and potentially for future divestment.

The mandate and interaction of Mubadala and ADQ in Abu Dhabi could be similar to the ones adopted by ICD and the newly proposed Dubai Investment Fund in Dubai. Chaired by the UAE Ministry of Finance, the new fund will manage some of the most recent companies being listed, including DEWA, Salik and Dubai Taxi, and potentially, the huge DP World. It is yet unclear the role that Dubai Holding will play in that new scenario.

Oman’s SWF is younger than its Emirati and Saudi counterparts, but is aggressively pushing forward its own process of improving profitability and reducing debt of portfolio companies. The OIA slashed the debt of its portfolio companies by nearly a quarter since 2020, which will make them more attractive when divested. The fund is helping drive the Oman Vision 2040 program by attracting further FDI, which will also be supported by the newly proposed US$ 5.2 billion Oman Future Fund. The new fund will be under OIA’s management.

There are signs that Kuwait is following this trend, too. In 2023, the government announced the launch of the Ciyada Development Fund as part of the government’s 2023-27 development program centered on 107 projects, including a new terminal in Kuwait International Airport as well as port, logistics and tourism projects. It will seek private sector partnerships in a drive to diversify the oil-based economy. The government also transferred US$ 8.0 billion of landholdings to PIFSS with the intention for strategic real estate development, possibly under the ambit of subsidiary the Wafra Real Estate Company, which is developing Failaka Island.

Lastly, Qatar and Bahrain have been quieter on this front lately. The former is going through the hangover of the World Cup and remains with QIA as the umbrella for major national champions, including QNB, Ooredoo, Qatar Airways, Mwani, Qatari Diar, and Nebras Power. The latter uses SWF Mumtalakat to manage a wide range of strategic investments, local impact investments, and government holdings.

Domestic IPOs:

In the past six years alone, GCC companies have raised US$ 76.5 billion in domestic stock exchanges. This is an staggering figure for the region’s capital markets, which did not enjoy the best reputation in terms of regulatory regime, liquidity, trading volume, and times of operation (given the Sunday to Thursday working week), until very recently. However, there have been important steps to take advantage of today’s spotlight, and Saudi’s Tadawul is now the 12th largest stock exchange by market cap, ahead of Korea Exchange and Deutsche Börse.

Almost 70% of the 138 GCC companies that went public between 2018 and 2023 chose the Tadawul. The UAE, with ADX, DFM and Nasdaq-Dubai, saw 24 IPOs, while Oman’s MSX saw eight and Qatar’s QSE, four. Boursa Kuwait, which is featured in a Netflix show, and Bahrain Bourse have been more disappointing. The pipeline for 2024 appears to be strong, with Prince Alwaleed potentially listing low-cost airline Flynas in Saudi, and the UAE potentially seeing the IPOs of Spinneys Dubai, and that of Mubadala’s and ICD’s EGA, at last.

In fact, a distinctive feature of IPOs in the GCC is that Sovereign Investors are usually behind the selling party, the buying party, or both – sometimes across borders. E.g., ADIA and KIA were alleged cornerstone investors in Aramco’s IPO; PIF and QIA bought in shares in the recent listing of OQ Gas (under OIA’s umbrella); and Fertiglobe’s listing in Abu Dhabi attracted Singapore’s GIC, among others. Offerings in the UAE have to keep 5% for the Emirates Investment Authority (EIA), which can choose whether to invest or not.

Regional Geopolitics and Support:

Gulf governments have aligned their SWFs with their geopolitical priorities, particularly in their own regional backyard as they seek to bolster ties and integrate economies. SWFs are central to delivering on multi-billion bilateral memoranda of understanding – grand ambitions launched in high profile visits, although investment rarely, if ever, reaches targets. Saudi Arabia, the UAE and Qatar have engaged in what appears to be a bidding war for influence, with Egypt emerging as a major target and significant attention in Turkey and other markets.

Egypt has been courting Gulf investment to stimulate inward investment, which has been limited due to the country’s yawning budget deficit, weak currency and high interest rates. Sovereign fund TSFE is being used to facilitate growth, offering state-owned assets through its newly formed Pre-IPO sub-fund. In 2022, PIF announced a US$ 10 billion joint effort, the Saudi Egyptian Investment Co (SEIC), which has already bought minority stakes in four listed companies involved in fertilizer, transportation and finance for US$ 1.3 billion.

UAE funds have also set their eyes on Egypt. ADQ established an office in Cairo in 2021 after signing a US$ 20 billion platform with TSFE and has invested in financial services (CIB, Fawry), real estate (SODIC), retail (Lulu supermarkets), petrochemicals (Abou Kir Fertilizers and Misr Fertilizers), infrastructure (Alexandria Container and Cargo) and oil and gas (ELAB, National Drilling, Ethydco). Mubadala subsidiary Mubadala Energy also has an office in Cairo and significant operations with SUMED and stakes in several oilfields.

Lastly, Qatar has mended ties with Egypt and Gulf states and is pursuing similar pledges and deals. In 2022, it deposited US$ 4 billion in the Egyptian central bank and during 2023, QIA reportedly shown interest in the hotels and telecommunications sectors and in a US$ 1 billion renewables project in the Suez Canal Economic Zone, which includes a green ammonia unit and is likely to be angling for a breakthrough in 2024.

Türkiye presents another set of circumstances as its economy is bogged down by heavy deficits, weak lira and sky-high inflation. In 2021, ADQ signed an MoU with Türkiye Wealth Fund (TVF) for a US$ 10 billion package in energy and utilities, healthcare, agriculture, transportation and logistics. After the 2023 earthquake, ADQ agreed to finance up to US$ 8.5 billion of relief bonds and up to US$ 3.0 billion in credit for exports. Qatar’s QIA has also been active in Türkiye with a 10% stake in Borsa Istanbul, a 42% stake in high-end mall IstinyePark, some funding in the country’s first decacorn Trendyoland, and more recently, a stake in the Eurasia Tunnel company. In 2023, the fund was reportedly approached for a US$ 1.7 billion investment in Galataport.

Within the Gulf, Oman has also drawn interest from Saudi and Abu Dhabi SWFs. In 2022, PIF invested US$ 0.3 billion in private equity infrastructure fund Rakiza, and in July 2023, it signed an MoU with OIA for US$ 5 billion (Saudi Omani Investment Company), which bought a 20% anchor investment in Abraj Energy Services’ IPO. Abu Dhabi’s Mubadala has also weighted in on the action and in 2023, it pledged support to the Oman and Etihad Rail Company, which is building a US$3 billion high-speed railway network connecting the two countries. ADQ signed a deal with OIA worth US$ 2.7 billion and is studying targets including high-growth tech startups.

Saudi’s PIF has been very active in other regional markets, too. In 2017, it established the US$ 3 billion Saudi Jordanian Investment Fund alongside 16 domestic banks to pursues investments in Jordan’s “vital and promising sectors”. Six years later, it agreed to a deal of similar size with the Iraq Fund for Development to invest in Iraqi infrastructure, mining, agriculture, real estate and financial services opportunities. The Iraqi partnership is one of six regional vehicles the fund said it would establish in Bahrain, Egypt, Iraq, Jordan, Sudan, and Oman, with the aim of investing US$ 24 billion in infrastructure, real estate, and various industrial sectors.

Lastly, the geopolitically strategic Red Sea region is also seeing intense activity as SWFs look to develop port infrastructure, which not only helps develop trade but also secures strategic inroads into East Africa. In 2022, ADQ backed a new Red Sea port in Sudan as part of a US$ 6 billion package, including a free trade zone modelled on Dubai’s Jebel Ali, a large agricultural project, and a US$ 0.3 billion deposit in Sudan's central bank. The port is a joint project between DAL and AD Ports, and will compete with the country's main national port, Port Sudan, which has been suffering from infrastructural challenges and blockades.

International Firepower:

The disruption of strategic investment funds with a catalytic function has made the SWF universe even more heterogeneous and complex to analyze. The source of wealth, the investment mandate and the geographical restrictions ultimately define the true identity of every sovereign wealth fund.

Today, there are only four major SWFs that are unable to invest domestically, and it is because a sister organization does: ADIA invests overseas only because Mubadala and ADQ can do it in the UAE too; GIC only invests out of Singapore to stay away from Temasek-linked companies; NBIM focuses on global investments and leaves Norway for FTF; and KIC does not invest at home but half of NPS’ portfolio is in Korea. All four funds are, therefore, among the most active and powerful institutional investors in global markets.

Others may not have as much international firepower after all the projects and undertakings at home, e.g., PIF is the world’s seven largest SWF with over US$ 700 billion of AuM, but if we stripped all the spending it does in the Kingdom, it would have a similar firepower to Mubadala and Temasek, which are a third of its size. Of the SWF industry’s global AuM of US$ 11.2 trillion, Global SWF estimates that 40%, i.e., US$ 4.6 trillion, is invested within their respective economies, while US$ 6.6 trillion would be defined as “international firepower”.

Not surprisingly, 42% of that firepower sits within Middle Eastern funds, which is the reason most asset managers have turned into the region when thinking of fundraising or selling assets. Another 31% sits within Asian funds, while 22% sits in Europe – or rather, Oslo. Around three quarters of that international firepower is invested in stocks and bonds, while US$ 1.6 trillion is or will be invested in private markets globally.

Size Matters:

State-Owned Investors manage almost US$ 50 trillion, which is half of the world’s GDP, US$ 100 trillion. The ranking of countries by public wealth in absolute terms is led by the world’s three leading economies (the United States, China and Japan) and can be always checked in real time at https://globalswf.com/countries.

However, if we compare the capital of State-Owned Investors and the GDP of their countries, we can find the world’s largest concentration of wealth in much smaller territories, some of which are, unsurprisingly, in the Middle East (Abu Dhabi, Kuwait, Dubai, Libya, Qatar and Saudi Arabia) and Asia (Singapore, Brunei, Hong Kong). If we did the same exercise but comparing it to the existing population of each territory, the Top 5 would be Abu Dhabi, Singapore, Norway, Kuwait and Qatar (ahead of Monaco, Luxembourg, and Switzerland).

New and Proposed SWFs:

Governments around the world continue to debate launching new funds for a variety of reasons and purposes. Some of them are sourced with wealth from commodities or reserves and have a savings function, while others are not cash-abundant but are established to attract co-investors in the hosting economy.

Five new funds were officially started in the past 12 months: the Philippines settled the debate and established the Maharlika Investment Fund with an initial capitalization of US$ 2.3 billion from the Land Bank of the Philippines, the Development Bank of the Philippines and the national government. Following the examples of India’s NIIF and Indonesia’s INA, Maharlika will aim at attracting co-investors for its infrastructure needs, as signaled by the appointment of an executive at International Container Terminal Services (ICTS).

Similarly, Hong Kong established its Investment Corporation HKIC, with seven secondees from the HKMA, including Clara Chan, who will be the CEO and Rita Leung, the CIO. The HKIC consolidates four funds (HK Growth Portfolio, Greater Bay Area Investment Fund, Strategic Tech Fund, and Co-Investment Fund) for US$ 8.0 billion and is modelled after Temasek, with a focus on strategic investment in the local economy.

The other three funds are still in early stages: Pakistan and Kosovo are cherry-picking some of their most profitable holdings to be transferred to the newly established PSWF and SFRK, respectively; while Mozambique is hoping to be able to start channeling the gas revenues from Cabo Delgado into FSM soon.

Several other countries have grand plans, too. In December, Dubai announced the formation of a new investment fund, DIF, under the Department of Finance that could absorb DP World and reach US$ 80-100 billion. Its neighbors Kuwait and Oman also unveiled new domestic-focused funds, with Ciyada Development Fund and Oman Future Fund, respectively. Governments in the GCC are increasingly concerned about their sustainability and resilience and are supplementing their SWF offering with inward looking strategic vehicles.

In Europe, Ireland, Italy and Portugal are thinking of new savings vehicles for their upcoming budget surpluses. The Irish economy is benefitting from the inflow of global tech and pharma companies seeking low tax rates and expects to feed the Future Ireland Fund, which may reach US$ 106 billion by 2035. In Latin America, Peru and Colombia are thinking of new vehicles in addition to the existing FEF and FAE, respectively.

Lastly, on the public pension side, the Australian superannuation industry continues its consolidation. In 2023, five mergers were finalized (UniSuper-ACS, Mercer Super-BT Super, CBUS-EISS, HostPlus-Maritime Super, and ART-CBA Group Super); and four more were announced (ART-AvSuper, CareSuper-Spirit Super, Active Super-Vision Super, and Mine Super-TWU into Team Super). By 2030, the industry is expected to reach US$ 2.4 trillion and be led by AustralianSuper and AustralianRetirementTrust with US$ 330+ billion each.

New Offices:

Sovereign Investors continue to open offices away from their headquarters, as part of their investment efforts and broader relationships with a particular country or region.

In 2023, we saw nine offices being established. In New York, KIA’s Wren House hired Martin Torres from Blackrock to focus on Energy Transition and opened an office in Midtown; Khazanah moved in its teams from San Francisco to focus on later stage deals; and AIMCo poached David Scudellari from PSP to open a multi-asset class office in Manhattan. In London, BCI opened an infrastructure-focused office in Marble Arch away from QuadReal teams in St James’, and Aware Super became Australia’s second superannuation fund in Britain, after AustralianSuper. And in Spain, ADIA Lab opened its “European headquarters” in Granada.

More significantly, we saw three funds opening offices in Singapore: Dutch pension fund APG opened a post to support its main Asian hub in Hong Kong;  Australia’s QIC opened an office dedicated to distribution; and AIMCo sent shock waves when it poached Kevin Bong from GIC and took over Ontario Teachers’ lease in Asia Square. The Lion City saw a significant influx of professionals from Mainland China and Hong Kong in the aftermath of Covid-19, and even though it is stabilizing now, it remains the top choice for an Asian hub.

The pipeline for additional offices overseas is strong, and we may see the long-announced posts of KIC in Mumbai and of Temasek in Paris finally happening in early 2024. HOOPP will be the last Maple Eight fund to open an office in London, signaling its global expansion and confidence in the UK. Other moves have been rumored but seem more remote: India’s Narendra Modi is pushing for ADIA and PIF to open offices in his home state Gujarat’s GIFT City, while AIMCo is considering a representative office in the Abu Dhabi Global Market.

New CEOs:

The past 12 months have broken all records when it comes to changes in leadership in SOIs: a total of 32 new CEOs, if we include those announced for 2024. As we have stated before, this is not necessarily a good thing: in the context of highly disrupted markets and economies, sovereign funds need stable leaders that can deliver.

One of the year’s most covered stories was the firing of several executives of Swedish pension fund Alecta, including the CEO and the Head of Equities, in April 2023 after the US$ 2 billion losses associated with holdings in SVB and Signature Bank. SOIs have different ways of showing accountability, and a month later, Temasek lowered the salaries of the portfolios managers responsible for the US$ 275 million injection in FTX.

Other changes received less explanation. In the Gulf, UAE federal funds EIA and GPSSA replaced their CEOs, and Bahrain’s Mumtalakat and Osool theirs, without much fanfare. The musical chairs also continued in Malaysia, where Hamadah Othman (former CEO of KWAP) replaced Amrin Awaluddin (ex-LTAT) as CEO of LTH; and Amir H. Azizan left as CEO of KWSP to become Dty Minister of Finance. Its neighbor Singapore also saw the CEOs of MAS and CPF changed for executives from the Ministries of Manpower and Education.

Three state-level funds in the US (COPERA, NM SIC and Texas PSF) replaced their top executives. Down under, the CEOs of CBUS and ART retired, and NZ Super is still looking for a new, permanent CEO.

New CIOs:

This year we also decided to list the changes in CIOs, although some restrictions apply. For example, there are several Sovereign Investors that do not have a single CIO, but multiple for each asset class. This is the case of Abu Dhabi’s ADIA and Mubadala, Qatar’s QIA, Singapore’s GIC, and Norway’s NBIM. Also, certain retirement systems in the US call their CIOs “Executive Directors” (more akin CEOs), while their Treasurer plays a supervisory role. Lastly, some funds have leaders that play both the CEO and CIO role, e.g., BCI and FAP.

In any case, we also saw a fair share of rotation among some major funds, including three of the Maple Eight funds in Canada. In January, Marlene Puffer replaced Sandra Lau and James Barber as a single CIO for AIMCo, in April, Satish Rai retired after five years as CIO of OMERS and was replaced by Ralph Berg, and in December, Ziad Hindo left after 23 years at Ontario Teachers’ and was replaced by Stephen McLennan as CIO.

Down Under, CBUS’ Brett Chatfield took over as CIO after Kristian Fok was appointed CEO; and Ben Samild replaced Sue Brake as a single CIO of Future Fund, with two new deputies under him. AustralianSuper did not change its CIO but appointed a Deputy CIO to sit in London and support the fund’s global expansion. The Gulf funds got their second Aussie CIO (after EIA’s Troy Rieck, who joined from QIC in 2022) in Charles Woodhouse, who left AustralianRetirementTrust to replace Mark Burbach as CIO of the Abu Dhabi Pension Fund. Khalid Taqi took over as CIO of Osool, although he left a few months later to join Mumtalakat.

American retirement funds also endured some changes at the top of their investment departments. Elizabeth Burton left Honolulu for Goldman and was replaced by Kristin Varela as CIO of Hawaii ERS; and Benjamin Cotton and Andrew Junkin were appointed CIOs of Penn PSERS and Virginia RS, respectively. But the biggest news was in Sacramento, where Nicole Musicco quit as CIO of CalPERS after less than two years at the post. As we wrote back in September, the move raised questions over the fund’s future private equity strategy, and in fact, the Head of PE, Yup Kim, followed Musicco a few months later to join Texas MRS as CIO.

In Asia, Malaysia’s Khazanah lost its CEO in January 2023 and the post has been vacant since then, while Hong Kong’s newest fund HKIC recruited its CIO from HKMA, just like it did with the CEO position.

As it is now tradition, we are revising our projections for the industry for the next seven years. We have until now estimated the growth of sovereign wealth funds and public pension funds, and this year we are also adding central banks to the mix. All in all, we expect State-Owned Investors to manage US$ 71 trillion 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 issue regular projections of their balance sheets to 2025, 2030, 2050 and beyond (GPIF is now expecting to peak at US$ 4.4 trillion in year 2079). For the rest, we have relied on the average growth between 2015-2023 when we believed it made sense, or our own estimate otherwise.

• We are expecting SWFs to grow from US$ 11.2 trillion in 2023, to US$ 12.7 trillion by 2025, and to US$ 18.0 trillion by 2030. Half of the funds are funded by commodity exports so these figures will be highly dependent on oil prices. The growth in size of the existing players may be fueled by new funds arising around the world (13 new funds this decade so far). We could see well over 200 SWFs operating by 2030.

• Public pension funds will keep benefiting from consolidation and increasing contributions, and we expect them to grow from today’s US$ 23.1 trillion to US$ 25.4 trillion by 2025, and to US$ 32.4 trillion by 2030. Changes in distribution policies and in the retirement age at some of the systems, and the transition to DC may affect these numbers.

• Lastly, Central Banks have experienced the slowest growth, at 4.3% p.a. from 2008, and holding the same pace would bring their AuM from US$ 15.4 trillion today, to US$ 16.8 in 2025 and US$ 20.7 trillion in 2030.

According to the IMF’s latest projections, a group of 20 countries may run a joint surplus of over US$ 8.2 trillion in the next five years. Half of them do not currently have a SWF with a savings function (or a SWF at all), and may want to consider one. Ireland and Italy are thinking about it, and Germany, Japan, Taiwan, the Netherlands and Switzerland should, too.

Asia will continue to gain an important role in the world economy. According to the Asian Development Bank projections, the share of the region in the world economy will increase from 34% in 2009 to close to 50% in 2030. In the next five years (2024-2028), the IMF projects India, Indonesia and China will grow at an average annual rate of +6.3%, +5.0% and +3.9%, respectively; while it believes the US, the EU and the UK will only grow, on average, at an annual pace of +1.9%, +1.8% and +1.6%, respectively.

However, the threatening cloud of geopolitics continues to loom large, after almost two years of war in Ukraine, and three months since the escalation between Israel and Hamas. Most analysts are closely watching the developments in the Strait of Taiwan, as well as the upcoming presidential elections that will take place in the US in November 2024, both of which may determine the fate of the global political stability.

As predicted last year, Sovereign Investors will continue to read the room and build resilient portfolios. This may drive further diversification and the focus on new or more sophisticated asset classes. The emergence of SWFs with domestic mandates will also continue to change the dynamics of the industry, and we may see the pure international, financial investors model to become obsolete in the next few years. Asset owners and asset managers will need to assure sustainability over the long term, and not only climate-wise.

We have revised the projections of the Top 15 largest sovereign investors accordingly. Japan’s GPIF will probably still be the largest sovereign investor by 2025, but Norway’s NBIM may take over soon after that. China will continue to have a key role unless it changes the structure of its pools of capital dramatically, and there will be four Middle East funds in the Top 15 by 2030, including Saudi Arabia’s PIF with US$ 2 trillion.

Appendix 1: Methodology & Rankings

Global SWF tracks 653 State-Owned Investors (“SOIs”), including Sovereign Wealth Funds (“SWFs”), Public Pension Funds (“PPFs”) and Central Banks (“CBs”), which jointly manage US$ 49.7 trillion in assets. Today, the industry is highly complex, with mixed forms of structures, and portfolios, and we define five major groups:

• Central Banks (CBs): in 2023, we went through a comprehensive exercise to incorporate CBs into our universe, and to avoid any intersection or double-counting of the AuM of CBs and SWFs. Most central banks around the world maintain liquid portfolios, except for China’s SAFE (Investment Company), Hong Kong’s HKMA (Exchange Fund), Kazakhstan’s NBK (NOF and NIC), and Saudi Arabia’s SAMA (Foreign Holdings).

• 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, Indonesia’s INA and Philippines’ Maharlika.

• 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, Spain’s COFIDES, or Singapore’s Temasek.

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 653 SOIs, we define a Top 300 list, which can be found in Appendix 1 and allows us to focus our efforts on the 100 most active and sizeable SWFs, PPFs, and CBs. This sample serves us as a fair representation of the heterogenous universe of state-owned investors around the world.

Methodology:

All the data is proprietary and comes from public sources or estimated based on our knowledge and insights. Of the Top 300, 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, 2024, and collecting activity up to December 31, 2023, serves as a proof.

Ranking of Top 100 SWFs:

Ranking of Top 100 PPFs:

Ranking of Top 100 CBs:

Breakthroughs:

We had a busy 2023 to stay on top of all news. Our monthly newsletters are sent on the very first day of the month to our clients around the world. For example, on February 1, we reported on the emergence of Abu Dhabi family offices; on April 1, we studied the effect of the banking distress on Sovereign Investors and compared it with 2008 GFC; and on September1, we did a special analysis on SOIs’ exposure to China.

We also reported on what we saw on the ground during our various tours, in Canada (Toronto and Montréal) on May 1; and in the Middle East (Abu Dhabi, Dubai, Doha, and Riyadh) on November 1.

Technical Analyses:

Beyond covering the news, our mission is to produce in-depth research that can be easily digested and actioned by our readers, and we produce a thoughtful infographic in each of our newsletters. For example, on April 1, we featured an infographic of Arab investors in football clubs; on June 1, we talked about the important transition of Defined Benefit (DB) to Defined Contribution (DC) among some public pension funds; and on August 1, we compared the major state-owned investors of the Gulf Cooperation Council (GCC) and South East Asia (SEA).

Interviews:

We don’t take for granted our privileged position of trust among the Sovereign Investors’ community. In 2023, we had in-person private sessions at the offices of 36 funds representing almost US$ 10 trillion in assets. From Toronto and Montréal; to New York and London; to Abu Dhabi, Dubai, Riyadh and Doha; to Singapore, Hong Kong and Beijing; we gained unique insights into the universe of investors we cover and serve.

In addition, our monthly interviews keep piling up and we have featured the C-suite of 42 funds in the past 3.5 years. In 2023, we interviewed executives of 13 funds managing US$ 2.3 trillion in assets, from the Americas (CDPQ, IMCO, BCI, FFSB), Europe (NBIM, Kosovo), Middle East (TSFE), Africa (Djibouti, Mauritius), and Asia (Temasek, GPF, INA, POBA). We also published an update on African SWFs, after attending the ASIF summit in Kigali and covered the launch of Kosovo’s SWF, which we attended in person in Pristina.

A depository of all 42 interviews to date can be accessed at https://globalswf.com/news?tag_id=51.

As of December 2023, Sovereign Wealth and Public Pension Funds manage US$ 34.4 trillion in capital, of which 6% is invested in real estate. Of this US$ 2.1 trillion, around 25% is invested directly in all kinds of residences, shopping malls, office buildings, hotels and resorts, and warehouses around the world, London and New York are two major winners, but there are 30 other cities where SOIs have invested at least US$ 0.5 billion:

• Canada’s, UAE’s, Singapore’s and Australia’s real estate sectors are heavily supported by domestic SOIs.

• Direct investments in the US and Europe are largely concentrated in five major cities of each region.

• Sovereign Investors tend to shy away from direct in China, and prefer partnerships in logistics and offices.

• India hasn’t usually been a focus when it comes to RE, but this may have started to change. Japan is hot, too.

• The five largest international players in this space are QIA, GIC, NBIM, ADIA, and CDPQ (via Ivanhoé).

London City:

The property sector in London has been a playground for Sovereign Investors since the Abu Dhabi Investment Board (predecessor to ADIA) bought the Aviva Tower (today’s St Helen’s and soon to be 1 Undershaft), and the Kuwait Investment Office (KIA) bought St Martins Corporation, including London Bridge City – both in 1974. Since then, SOIs have deployed over US$ 76 billion in 156 properties in The City, in addition to 25 rep offices. Infrastructure is also popular and SOIs own three of the six airports that serve the capital (LHR, LGW, LCY) and utilities giant Thames Water. Interest in London slowed down in the past two years, with a few exceptions: GIC closed three major deals (Paddington Central, Student Roost and Tribeca King’s Cross), ADIA acquired a BTR project in Bermondsey, and Aware Super took over QIA’s stake in Get Living (co-invested by APG, OMERS).

New York City:

New York is one of the world’s favorite cities for many, and Sovereign Investors are no exception. In addition to maintaining 25 rep offices, SOIs have deployed over US$ 52 billion in 116 different properties in the Big Apple. The first investment, ADIA’s in 330 Madison Ave, took place in 1979. The GFC saw an uptick in the interest in Manhattan properties, with ADIC grabbing the Chrysler, QIA and KIA acquiring a piece of the GM building on Fifth, and GIC financing the construction of StuyTown. The second wave came in the early 2010s, as Sovereign Investors funded the expansion of the West side and the start of the Billionaires’ Row on 57th Street. After 2017, transaction volume decreased significantly. However, we have seen renewed activity in the past year, with ICD selling the Mandarin Oriental Hotel to Reliance, QIA taking over Mubadala’s stake in the iconic Park Lane Hotel by Central Park, and NBIM financing the development of a new skyscraper on 343 Madison Avenue.

Global SWF is an industry specialist that was established 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 has built three differentiated business verticals, namely:

• Consulting Services, helping governments establish their SWFs and facilitating investment promotion.

• 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 additional interns, partners and faculty members operating out of Toronto, Boston, Frankfurt, Dublin, Lagos, Abu Dhabi, Hong Kong, and Melbourne. In 2023, Global SWF opened an office in Singapore to propel the next stage of growth, focused on Asia and tech.