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The world’s major state-owned institutions (SOIs) will invest more in emerging markets than any other region in 2023, with particular interest in China, Indonesia, Brazil and especially India. This was revealed by research and consulting firm Global SWF, which released its annual report on January 1st.
In 2023, sovereign wealth funds (SWFs) invested less in amount and frequency than in 2022. Global SWF says this may indicate an overly cautious approach, as there is no shortage of capital to manage among these institutions.
Average investment deal was flat at $350 million, but compared to 2022, investments by sovereign wealth funds fell 21% to $123.8 billion with 317 deals, while public pension funds (PPF) Investments by were down 27% to $79.6 billion in 267 investments.
“Sovereign investors are navigating one crisis after another, albeit with different approaches. For example, while there is a consistent interest in broader Asia, there is no consensus on portfolio exposure to China. ” said Diego Lopez, managing director of Singapore-based Global SWF.
Overall, the recovery of financial markets from heavy losses in 2022, combined with sustained high oil prices, led to an increase in the industry’s assets under management (AUM). SWFs have rebounded markedly, reaching a peak of $11.2 trillion. The PPF increased its assets to $23.1 trillion, while the central bank remained roughly flat at $15.4 trillion.
SOI assets under management ($ trillion)
Saudi Arabia’s Public Investment Fund (PIF) has quickly become the dominant player among these large funds, investing heavily in high-profile industries and sports franchises. According to Global SWF, PIF became a major investor in the private market in 2023, investing $31.5 billion in 48 deals, an increase of 33% from 2022.
PIF’s U.S. stock portfolio grew 18% in 2023, primarily due to appreciation in the value of existing stocks. Global SWF notes that Saudi funds were very passive during the year and did not change their key positions.
Singapore’s GIC, the traditional lead player in such investigations, continues to be active, but to a lesser extent than in 2022. Despite having one of the largest capital inflows ever, GIC experienced a decline of 36% in volume and 48% in value of investment activity. $144 billion from the city’s central bank.
GIC’s portfolio savings came through developed markets, with activities in India, China, Brazil and Indonesia scoring much higher. Global SWF notes that the change in GIC’s investment appetite is significant, as GIC invested three times as much in emerging markets in 2023 as it did in 2022.
overall revenue
Calculating annualized returns over the 10-year period from 2013 to 2022, the best performing fund is New Zealand Super, followed by Canada’s CPP and Sweden’s AP Fonden. The average return for all funds is 6.6% per year, compared to 5.0% per year for a 60/40 mix of stocks and bonds and 10% per year for the S&P 500.
The Global SWF Report evaluates different approaches to asset allocation across the Asia-Pacific region. The report said Singapore’s GIC is now adopting a more granular total portfolio approach that considers both alpha and beta return factors and blends top-down analysis with bottom-up insights. Pointed out. This allows the fund to cover a range of risk and return profiles across asset classes and strategies.
The Australian Future Fund takes a total portfolio approach with an emphasis on diversification. This includes exploring alpha, focusing on liquidity and dynamic asset allocation, pivoting between EM and EM equities, widening the currency basket, increasing domestic exposure (via infrastructure), and moving into gold and commodities. It means newer lever operations, such as increasing specific gravity. , tangible assets, and substitute assets.
Peer NZ Super has long advocated strategic tilting – short-term aggressive changes to a reference portfolio to increase exposure to undervalued asset classes. The Kiwi Fund is championing the existence of Climate Alpha and introducing a new sustainable investment strategy. We are also working on an AI-powered portfolio manager that predicts stock performance and considers the entire “factor zoo” free of human bias.
South Korea’s KIC continues to aim to allocate 25% of its portfolio to alternatives by 2025, up from 17.5% at the end of 2021, targeting opportunities in technology, healthcare and venture capital. Meanwhile, South Korea’s NPS aims to diversify its portfolio based on a five-year plan announced in May 2023, and aims to increase its alternative asset allocation through outsourcing with external management companies.
According to Global SWF, these approaches point to the way forward. That is, initially his capital in PE increases through a fund, which over time can turn into co-investments or direct investments.
Despite strong interest in AI and machine learning in 2023, venture capital investment in technology has fallen by 85% from 2022. In 2022, it accounted for 42% of total venture capital deals, but in 2023, the sector’s contribution was only 13%. Technology continued the momentum of the pandemic, giving way to venture capital in emerging market finance and retail startups, as e-commerce in larger markets such as India, Indonesia and Malaysia kicked into gear.
Overall, sovereign investors will put more money into so-called green assets than so-called black assets in 2023, with a record $25.9 billion in support for energy transition companies such as renewable energy, battery storage, and battery storage. reached. Electric car.
Gulf SWFs account for almost half of this figure, driving the energy transition agenda and recycling proceeds from black assets into green impact investments, particularly in their own backyards, the Global SWF report said. ing.
The report also highlights that Singapore’s GIC aggressively pursued its green energy agenda in 2023, injecting nearly $5 billion into the sector and maintaining its leading position, comparable to 2022 levels. ing. Temasek is equally focused on start-ups with new technologies to advance renewable energy. Batteries and low carbon industrial processes.
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