Global government-linked investment vehicles clawed back about US$1.4 trillion of 2022 losses by the end of last year on an expected path to more than US$70 trillion by 2030.
According to the Global SWF annual report released last week, the state-owned investment universe – a group comprising sovereign wealth funds, public pension funds and central banks – reported US$49.7 trillion under management as at the end of December, equating to about half of the world’s GDP..
Despite the improved position, the collective pool of government-controlled funds still fell short of the 2021 peak of US$50.8 trillion.
“Sovereign Wealth Funds (SWFs) recovered markedly and peaked at US$ 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,” the report says. “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.”
Ongoing contributions and market growth should see the state-owned fund pool hit almost US$55 trillion by 2025 and US$71 trillion in 2030, the Global SWF study says, highlighting the outsize influence of the government investment sector on markets.
Diego López, Global SWF founder, says in the report: “Save for 2008, the term ‘Sovereign Wealth Fund’ had never been googled so much in a 12-month period. Governments, public bodies, multilateral organizations, asset managers and service providers around the world all have asset owners in their sights.”
And the popularity of government-influenced investing is set to grow further, the report says, with five new funds launched in 2023 and another dozen or so in the pipeline.
Challenging economic and geopolitical conditions have also seen many state-owned funds reconsider asset allocation decisions – albeit that the sector represents a diverse range of investment mandates and strategic goals.
For example, the report highlights the NZ Superannuation Fund (NZS) as “an advocate for strategic tilting, i.e., short-term active changes relative to the reference portfolio to increase exposure to undervalued asset classes, which has added US$ 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.”
NZS was also the top-performing fund in the Global SWF universe over the 10-year financial reporting period ending in 2022, generating annualised returns of 12.1 per cent compared to the next-best result of 10.9 per cent (Canada Pension Plan).
The NZ fund, too, was on-trend with fund leadership changes in the sector as long-time chief Matt Whineray ended his tenure last year, one of the record 32 CEOs to exit during 2023.
Paula Steed, NZS general manager strategy and shared services, was named as interim chief ahead of a permanent replacement expected to be announced any day now.
Global SWF has 653 government-owned investment funds in its database.