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Sovereign Wealth Funds: An Evolving Transition

Rainy Day Money and Participants in Addressing Climate Change?

Are Sovereign Wealth Funds (SWFs) set to adapt to changing circumstances? Initially set up to invest natural resources or current account surpluses, some of the investment freedom and ambitions once enjoyed by SWFs are likely to be impacted by recent geopolitical events and other issues (such as deglobalisation, climate change, post COVID-19 recovery). Some governments now see these funds as a source of 'rainy day money' to help plug funding gaps brought on by collapsing oil prices and the economic downturn.

Several of the papers here pick up on the major themes identified by Invesco and the OECD, including gold and the climate change debate. Certainly for the latter, some SWFs have a pivotal yet dichotomous role trying both to maximize investment returns from fossil fuel revenue streams, and be seen as engaging in attempts to meet climate change aspirations. An example of this potential conflict is illustrated by Norway's SWF, which has recently increased investments in extractive industry stocks whilst simultaneously aiming to invest $11bn in unlisted renewable projects over the next couple of years.

 

norway flag boat

Global Sovereign Asset Management Study 2020 (Invesco)

For compliance reasons, this paper is only accessible in certain geographies

Invesco's eighth annual study of sovereign investors builds on previous work and identifies several themes and trends, some which have emerged over the last year.

Sovereign Wealth Funds 2019: Managing continuity, embracing change (IE University/CDC/ICEX)

In identifying recent trends in the Sovereign wealth industry this report also looks at the issues of reconciling shorter-term results with long-term investment horizons. The Report identifies where SWFs align investments with the Sustainable Development Goals, and investigates the key role they play in venture capital markets as a means to foster and anticipate change.

Pandemic, No Panic: Evidence from institutional investor flows (State Street, 2020)

State Street and the IFSWF investigates the media-generated perception that the COVID-19 and oil price crises may result in some governments using SWFs as sources of funds to help plug gaps in budget shortfalls. In general, the evidence suggests that many SWFs used the market setback to invest cash and rebalance portfolios opportunistically.

Top 91 Largest Sovereign Wealth Fund Rankings by Total Assets (SWFI, 2020)

The SWFI provides its most recent ranking table of the world's largest Sovereign Wealth Funds.

Government Pension Fund Global Annual Report 2019 (Norges Bank Investment Management)

The Annual Report and its associated publications (which can be found here: https://www.nbim.no/en/publications/) provides an extensive and comprehensive insight into how the world's largest SWF operates.

Mubadala Annual Review 2019 (Mubadala Investment Company)

This Annual Review offers an insight into the strategies, investments and performance of one of the several Emirati SWFs.

Annual Report on the Management of the Government’s Portfolio (GIC, 2019)

GIC highlights one part of the SWFs that the government controls, outlining performance, investment strategy and asset allocation.

Strategic Investment Funds' Role in the Low-carbon Transition (OECD, June 2020)

The OECD highlights the quite limited role that SWFs have played so far in climate finance initiatives. It goes on to highlight ways in which governments can support SWFs in becoming leading investors in clean-tech infrastructure and so aiding the post-pandemic green recovery.

How Sovereign Wealth Funds Can Catalyse Investments into the UN's SDGs (IFSWF, 2020)

SWFs are ideally placed to help transition their economies on to a more sustainable path and meet the United Nations’ Sustainable Development Goals (SDGs). The question is, will they pay more than lip service?

Establishing a Framework for Responsible Investment (One Planet Sovereign Wealth Funds, 2019)

This report highlights the steps undertaken by the One Planet Sovereign Wealth Fund Working Group to establish an ESG Framework to address and integrate climate change and financial risk investment analysis into the decision-making processes of several SWFs. It also features examples of investments made and actions taken which align with the Framework.

Video: How Private Equity & Sovereign Wealth Funds assess value in the energy transition (CERAWEEK, 2020)

This video offers insights into how private equity and SWFs are changing their criteria for valuing energy assets and are strategizing for the future in the light of the twin pressures of the fall in oil prices and demands for a green recovery.

Sovereign Wealth Funds’ Multiple Avenues to VC Exposure (Pitchbook, Jun 2020)

In this note from Pitchbook, they investigate the various approaches and strategies taken by SWFs to gain exposure to the VC industry.

Sovereign Wealth Funds Could Increase Equality in a post-COVID World (WEF blog, Jun 2020)

The blog from the WEF suggests a significantly different and expanded role for SWFs following the 'great reset' – one in which they act as redistributors, rather than aggregators, of wealth.

Gold and Central Bank Reserve Management during the COVID pandemic (World Gold Council, May 2020)

For compliance reasons, this paper is only accessible in certain geographies

World Gold Council reviews how gold performed as a reserve asset during several market crises, and notes its benefits of strategic value and resilience.