Crisis in equity markets and debt cause historic decline in sovereign wealth funds, says study

Steep declines in equity and bond markets last year reduced the combined value of sovereign wealth funds and public pension funds for the first time in history, a $2.2 trillion drop, a study estimated. industry annual.

Global SWF’s report on state-owned investment vehicles showed that the value of assets managed by sovereign wealth funds fell from US$11.5 trillion (R$61.4 trillion) to US$10.6 trillion (R$56.6 trillion ), while public pension funds fell from US$22.1 trillion (R$118 trillion) to US$20.8 trillion (R$111.1 trillion).

Diego López, from Global SWF, stated that the main reason for the retreats were corrections of more than 10% suffered by the main debt and equity markets, a combination that had not happened for 50 years.

The phenomenon came as Russia’s invasion of Ukraine boosted commodity prices and pushed already soaring inflation rates to 40-year highs. In response, the Federal Reserve and other major central banks raised their interest rates, causing a global crisis of asset sales.

“Some of the funds will not see these losses being realized given their characteristics as long-term investors,” said López. “But it’s quite telling about the moment we’re living in.”

The study, which looked at 455 state-owned investors with a combined total of US$32 trillion (R$170.9 trillion) in assets, indicated that ATP Denmark had the toughest year of any fund, with an estimated drop of 45 %, equivalent to a loss of US$ 34 billion (R$ 181.6 billion) for Danish retirees.

However, despite all the turmoil, investment by funds in purchasing companies, real estate and infrastructure assets rose 12% compared to 2021.

A record US$ 257.5 billion (R$ 1.3 trillion) was invested in 743 deals, and sovereign funds also settled a record number of transactions in the billions of dollars.

Singapore’s $690 billion sovereign wealth fund GIC led the way, investing more than $39 billion in 72 transactions. More than half of this was invested in real estate, especially related to logistics.

The research also determined that five of the top 10 investments ever made by state funds took place in 2022. Among them, the injection of US$ 7 billion (R$ 37.4 billion) by another Singapore vehicle, Temasek, into the test company, Element Materials inspection and certification, from the private equity fund Bridgepoint.

“If financial markets continue to fall in 2023, it is likely that SWFs will continue to hunt ‘elephants’ as an effective way to meet their capital allocation obligations”, states the research.

The survey also indicates that Persian Gulf sovereign funds such as ADIA, Mubadala, ADQ, PIF and QIA will become much more active in buying Western companies, after having received large injections of revenue from oil last year.