Asset valuations hit hard amid historic bond and stock market corrections and multi-decade highs in inflation
The singularly stormy market conditions of 2022 have achieved another first by slashing the value of the world’s total sovereign wealth funds and public pension funds – and by no less than US$2.2 trillion, new data reveals.
State-owned investor (SOI) specialist Global SWF has published its 2023 annual report studying state-owned investment vehicles throughout the year 2022.
The organization found that the value of assets managed by sovereign wealth funds fell annually from US$11.5 trillion to US$10.6 trillion, while public pension funds fell from US$22.1 trillion to US$20.8 trillion during the same period, Reuters reported.
Primarily driving the fund cuts was what Global SWF founder Diego López called the “simultaneous and significant (>10%) correction” of bonds and stocks all over the world, which had not happened in 50 years.
The grim combination of circumstances was in turn brought about by the Russia-Ukraine war, which pulled up commodity prices and fanned already rising interest rates to 40-year highs. The US Federal Reserve immediately jacked up its interest rates alongside other major central banks, causing a global market sell-off.
“… 2022 was the first year ever that sovereign wealth funds shrank in value,” López said in Global SWF’s annual report. “The scale of the drop is debatable as most sovereign wealth funds report with significant delays, if at all – but Global SWF estimates the impact totalled US$ 1 trillion. Similarly, public pension funds have reduced their assets by US$ 1.3 trillion…. These are paper losses and some of the funds will not see them realized in their role as long-term investors, but it is quite telling of the moment we are living.”
The annual report studied 455 state-owned investors with a combined US$ 32 trillion in assets. It found that Denmark’s sovereign pension fund, the ATP, suffered the most, taking a 45% fall that set the country’s pensioners back by US$ 34 billion.
Still, Global SWF found that state-owned investors deployed a record amount of capital – roughly US$260 billion according to its report – in fewer (747) deals in 2022 than they did in 2021 (890), including a record number of “mega deals” worth US$1 billion or more.
Singapore’s US$690 billion wealth fund GIC spent the most of all state-owned funds, or US$39 billion in 72 deals, more than half of which involved real estate and, more particularly, logistics properties.
Singapore's GIC Leads Sovereign Funds After Boosting Spending to $40.3B in 2022 https://t.co/rC0nhDvGDV
— Global SWF (@GlobalSWF) January 3, 2023
Global SWF’s annual report also found that five of the top 10 biggest investments made by state-owned investors took place in 2022, mostly in Europe and North America. These were:
- Singapore-owned Temasek spending US$ 7 billion to buy out UK-based Element Materials, a testing, inspection, and certification firm;
- Canada’s BCI acquiring 60% of Britain’s National Grid Gas Transmission and Metering arm with Macquarie;
- Italy's CDP Equity wealth fund spending US$4.4 billion on Autostrade per l’Italia;
- GIC spending another US$ 7 billion in US-based Store Capital, then US$ 3.9 billion in Canadian Summit.
If financial markets went on with their downward trajectory in 2023, Global SWF considered it likely that sovereign funds would continue “chasing elephants” as an effective way of meeting their capital allocation requirements.
Looking ahead, López said: “The silver lining [of 2022] for our industry is that half of the world’s sovereign wealth funds continue to be fueled by oil revenues, and we are expecting to see an increasing activity and role of Gulf SWFs in the global markets.”
