Top sovereign wealth funds dial back on investments in 2023

Global sovereign wealth funds cut back on investments in 2023, but there was a shift in sentiment towards emerging markets as highlighted by Global SWF in its annual report, issued on new year's day.
Top sovereign wealth funds dial back on investments in 2023

Leading state-owned institutions (SOIs) globally invested more in emerging markets than in any other region in 2023, with particular interest in China, Indonesia, Brazil and especially, India. That's according to research and consultancy firm Global SWF, whose annual report was released on January 1.

In 2023, sovereign wealth funds (SWFs) 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, said Global SWF.

The average invested deal remained constant at $0.35 billion, but compared to 2022, investments by sovereign wealth funds fell 21% to $123.8 billion in 317 transactions, while investments by public pension funds (PPFs) fell 27% to $79.6 billion in 267 deals.

“Sovereign investors are powering through crisis after crisis, although with different approaches. For example, there is no consensus around the exposure to China in their portfolios, although there is consistent interest in broader Asia,” said Diego López, Singapore-based managing director of Global SWF.

Overall, the recovery of financial markets after heavy losses in 2022, combined with sustained high oil prices boosted the industry’s assets under management (AUM). SWFs recovered markedly and peaked at $11.2 trillion; PPFs increased their assets to $23.1 trillion and central banks stayed almost flat at $15.4 trillion.

SOI assets under management ($ trillion)

Saudi Arabia’s Public Investment Fund (PIF) is fast becoming the dominant player among these mega-funds, making big investments in high profile industries and sports franchises. PIF was the leading private markets investor in 2023, according to Global SWF, with $31.5 billion deployed in 48 deals, 33% more than in 2022.

PIF’s US equities portfolio grew 18% in 2023, but mostly because of the rise in value of the existing stocks. Global SWF notes the Saudi fund was very passive during the year and did not change any major positions.

The traditional dominant player in such surveys, Singapore’s GIC, continues to be active, but not as much as in 2022. GIC reduced its investment activity by 36% in volume and by 48% in value, despite having received one of its largest inflows ever from the city's central bank of $144 billion.

The reductions with GIC's portfolio came via developed markets with activity in India, China, Brazil and Indonesia scoring much higher. Global SWF notes that the change in GIC’s appetite is very significant as it has invested in emerging markets in 2023 three times what it did in 2022.


Taking 10-year annualised returns between FY13 and FY22, the best performing fund would have been New Zealand Super followed by Canada’s CPP and Sweden’s AP Fonden. The average return of all funds, 6.6% p.a., compares with 5.0% p.a. of a 60/40 equity/bond mix, and 10% p.a. of the S&P500.

The Global SWF report assesses differing approaches to asset allocation across Asia Pacific. It notes that Singapore’s GIC is now taking a more granular total portfolio approach, which considers both alpha and beta return drivers and merges top-down analysis with bottom-up insights. This allows the fund to cover a variety of risk-return profiles across asset classes and strategies.

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.

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. 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.

Korea’s KIC continues to target 25% of its portfolio in allocation to alternatives by 2025, up from 17.5% at end-2021, 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 through mandates with external managers.

These approaches indicate the direction of travel, according to Global SWF: more capital into PE, initially via funds, with the potential of turning into co-investments and direct investments over time.

Despite the strong interest in AI and machine learning in 2023, VC investment in technology slumped 85% from 2022. Having represented 42% of total VC deal value in 2022, in 2023 the sector contributed just 13%. 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.

All in all, sovereign investors put more into so-called green assets than in the so-called black assets in 2023, reaching a historical maximum of $25.9 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, said the Global SWF report.

The report also highlights that Singapore’s GIC aggressively pursued its green energy agenda in 2023, maintaining a leading position with nearly $5 billion deployed into the sector, matching the level in 2022. Temasek is equally focused on start-ups with new technology to advance renewables, batteries and low carbon industrial processes.

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