A trader works on the floor of the New York Stock Exchange (NYSE) in New York, Monday, September 20, 2021.
Michael Ngale | Bloomberg Getty Images
The huge decline in stock and bond markets over the past year has reduced the combined value of sovereign wealth and public pension funds for the first time – and by as much as $2.2 trillion, an annual study of the sector has estimated.
A report on sovereign investment vehicles by industry specialist Global SWF found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion, while public pension funds fell to $20.8 trillion from $22.1 trillion.
Global SWF Diego López said the main driver has been a “simultaneous and significant” correction of 10%-plus suffered by the main bonds and the stock market, a combination that has not happened in 50 years.
It comes as Russia’s invasion of Ukraine boosted commodity prices and drove the already-rising inflation rate to a 40-year high. In response, the US Federal Reserve and other major central banks raised interest rates, prompting a global market sell-off.
“This is a paper loss and some funds will not realize that they are long-term investors,” López said. “But that’s enough to tell the story of where we live now.”
The report, which analyzed 455 country investors with combined assets of $32 trillion, found that Denmark’s ATP had the toughest year of any country with around a 45% plunge that lost $34 billion to Danish pensioners.
Despite all the turmoil, funds used to buy companies, property or infrastructure still increased by 12% compared to 2021.
A record $257.5 billion was distributed in 743 transactions, with sovereign wealth funds also closing a record $1 billion “mega-deal.”
Singapore’s $690 billion GIC fund topped the table, spending more than $39 billion in 72 transactions. More than half of that is stacked into real estate with a clear bias toward logistics properties.
In fact, five of the 10 largest investments made by state-owned investors are made in 2022, starting in January when another Singaporean vehicle, Temasek, spent $7 billion to buy testing, inspection and certification Element Materials from private equity fund Bridgepoint.
In March, Canada’s BCI then agreed to acquire 60% of the UK’s National Grid Gas Transmission and Metering arm with Macquarie. Two months later, CDP Equity Italy’s wealth fund invested $4.4 billion in Autostrade per l’Italia along with Blackstone and Macquarie.
“If financial markets continue to collapse in 2023, it is likely that sovereign funds will continue to ‘chase the elephant’ as an effective way to meet capital allocation requirements,” the report said.
This tipped SWFs from the Gulf such as ADIA, Mubadala, ADQ, PIF, QIA to be more active in buying Western companies that have received an injection of oil revenue money over the past year.