A recent international study has shown that significant declines in equity and bond markets over the past year have reduced the combined value of global sovereign wealth funds and public pension funds for the first time ever.
The report from the Global SWF platform revealed that stock market losses have pushed sovereign wealth fund operations to a historic halt in 2022.
Diego Lopez of the Global Sovereign Wealth Fund said the main driver was the simultaneous and significant corrections of more than 10% experienced by the main bond and equity markets, a combination that hasn’t occurred in 50 years.
Billions evaporate
Industry specialist Global SWF’s report on state-owned investment vehicles found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion.
A Global SWF report analyzing 455 state-owned investors with combined assets of $32 trillion revealed that the Danish pension fund had its toughest year yet, with a 45% decline.
Sharp declines in stock and bond markets over the past year have reduced the combined value of global sovereign wealth and public pension funds for the first time ever: the study estimated the losses at $2.2 trillion.
The biggest loser
Global SWF said on analysis of state-owned investment vehicles by industry specialist Global SWF, the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion.
Public pension fund assets fell to $20.8 trillion from $22.1 trillion, according to Global SWF.
It hasn’t happened for 50 years
It came as Russia’s invasion of Ukraine raised commodity prices and pushed already high inflation rates to their highest levels in 40 years.
In response, the US Federal Reserve and other major central banks raised interest rates causing a massive sell-off in the global market.
Paper losses
“These are paper leaks and some funds that you won’t see in their role as long-term investors,” Lopez said. “But they’re telling us exactly where we are.”
Despite all the turmoil, according to Global SWF, money spent on buying businesses, real estate or infrastructure is still up 12% compared to 2021.
Disk
SWF’s global analysis said a record $257.5 billion in deals were closed out of 743 deals, with sovereign wealth funds closing a record number of deals.
Singapore’s $690bn GIC mega fund topped business for the year by spending just over $39bn across 72 deals, with more than half of that amount accumulated in real estate with a clear bias towards logistics deals.
Five of the top 10 investments ever made were by state-owned enterprises in 2022, starting in January when state-owned Temasek spent $7 billion to buy test, inspection and certification company Element Materials from private fund equity Bridgepoint.
And in March, Canada’s BCI then agreed to acquire 60% of the UK’s National Grid Gas Transmission division and expand it with Macquarie.
Two months later, Italian equity fund CDP spent $4.4 billion on Autostrade in Italia alongside Blackstone and Macquarie.
What about 2023?
The report said: “If financial markets continue to decline in 2023, sovereign wealth funds are likely to continue to suffer further losses.
According to the report, Gulf sovereign wealth funds such as the Abu Dhabi Investment Authority, Mubadala, ADQ, PIF and the Qatar Investment Authority have channeled their investments towards Western companies thanks to oil revenues over the past year.