Global SWF: GIC leads; oil fuels Gulf funds and hedge funds give refuge

Singapore’s GIC invested more than any other SWF last year and fuelled by buoyant oil revenues, Gulf SWFs have had and are expected to continue their investment rampage. Elsewhere, hedge funds have proved one of the most successful allocations, particularly for ADIA, says Global SWF in its annual report.

Mega deals

Once again Singapore’s GIC invested more than any other SWF, deploying US$ 39.1 billion through the year – 13 per cent more than in 2021. Behind GIC, five Gulf funds confirmed their role as major global dealmakers.

In 2022, state-owned investors deployed more capital in fewer deals than in 2021. Global SWF reports a reduction in venture capital investment and an increase in mega-deals led by GIC and Temasek.

The average ticket size of the year was US$0.35 billion and compared to 2021, SWFs invested 38 per cent more, with US$ 152.5 billion in 425 transactions. “The major story of the year is the re-emergence of mega-deals, defined as investments of US$ 1 billion or more. The average ticket size increase to levels not seen since 2014, and there were more than 50 mega-deals in the year,” states the report.

In terms of industries, the activities of SOIs reflect the economic climate. Funds lost interest in venture capital investments in healthcare, consumer, and technology and grew their appetite for infrastructure (mostly transportation), energy, industrials and financials. Real estate remained constant.

Gulf Funds shine

In the global context of geopolitical, economic, and financial uncertainty, Middle Eastern funds shine more than ever. Most funds have shattered stereotypes of following hidden agendas and only hunting trophy assets and are now recognized as sophisticated, flexible, and mature investors that can move the needle at home and overseas, states the report.

The 18 Gulf SOIs manage US$ 3.7 trillion in financial capital and 7,500 personnel in human capital. Overseas, they have more than doubled their investments in Western economies, including the US and Europe, from US$ 21.8 billion in 2021 to US$ 51.2 billion in 2022. The high oil price means that GCC economies with lower fiscal expenditure will continue to have large surpluses. Expect the more liquid and internationally focused SWFs including Abu Dhabi’s ADIA, Kuwait’s KIA and Qatar’s QIA to receive significant inflows of capital, says the report.

In contrast, for those SWFs that are not oil-based, including those in China, Singapore or Korea, the investment momentum is more ominous. Even Norway’s NBIM, which could have offset the paper losses with the significant injections it received in 2022 from rising oil revenue, has been affected by currency losses.

Hedge funds

Hedge funds have been one of the few bright spots for sovereign investors, managing to avoid huge losses and gaining some momentum. ADIA’s US$ 60 billion hedge fund portfolio makes it the world’s largest allocator to hedge funds. The Abu Dhabi fund was a pioneer in the asset class when it started trading through commodity advisors (CTAs) back in mid-1980s.

In 2019, the alternatives portfolio was restructured from the traditional products into two main strategies comprising Diversifiers and Return Enhancers, in addition to an Emerging Opportunities mandate outside of the main allocation. However, a year later, ADIA decided to merge them into a single pool. The department employs 50 staff but most of the investment is outsourced. Since 2020, the team has been actively looking to benefit from a highly disrupted market and has added new managers across most strategies.

New SWFs

In another development, the research notes a jump in the number of new SWF funds. “In the first three years of the 2020s decade, we have already seen 13 new SWFs being set up, and 10 others saw significant progress and could join the club soon,” it states. In 2022, sovereign investors opened 10 more offices overseas in four continents as well as the appointment of new CEOs. However, it notes “the developments in Kazakhstan and Kuwait are worrisome in terms of governance and stability.”

Some of the new SWFs like Azerbaijan’s AIH or Ethiopia’s EIH were conceived as umbrellas of some of their countries’ most important assets. Others like Cape Verde’s FSE and Namibia’s Welwitschia were designed as fiscal stabilization mechanisms. A third group including Israel’s Citizens’ Fund and Australia’s Victorian Future Fund were developed as savings tools.

The latest country to join the SWF discussion is the Philippines, following the proposal to create the “Maharlika Investment Fund.”

The report states that last year proved one of the most difficult years for state-owned Investors in recent history. 2022 was the first year ever that the size of the SWF industry shrank in value. The scale of the drop is debatable as most SWFs report with significant delays, if at all – but Global SWF estimates the impact totalled US$ 1 trillion.

The major challenge of 2022 was the simultaneous and significant correction of bonds and stocks, which had not happened in 50 years. The global listed benchmarks for private markets also dropped significantly, with infrastructure and private credit being the most popular refuge.