Fol­low­ing are ex­cerpts of the pref­ace and the ex­ec­u­tive sum­ma­ry from the 2022 an­nu­al re­port of Glob­al SWF, the da­ta plat­form that tracks over 400 sov­er­eign wealth funds (SWFs) and pub­lic pen­sion funds (PPFs). The ex­cerpts ad­dress the unique­ness of 2022 for the funds.

Last year, 2022 was an ex­treme­ly in­ter­est­ing and chal­leng­ing year for mar­ket play­ers, giv­en geopol­i­tics, high in­fla­tion, ris­ing in­ter­est rates, and sig­nif­i­cant­ly neg­a­tive re­turns in both stocks and bonds. Glob­al eco­nom­ic growth is slow­ing down sharply, and sov­er­eign in­vestors must now op­er­ate cau­tious­ly in a Mul­ti-Po­lar World. The sil­ver lin­ing for our in­dus­try is that half of the world’s sov­er­eign wealth funds con­tin­ue to be fu­elled by oil rev­enues, and we are ex­pect­ing to see an in­creas­ing ac­tiv­i­ty and role of Gulf SWFs in the glob­al mar­kets.

The year 2022 was one of the most dif­fi­cult for State-Owned In­vestors (SOIs) in re­cent his­to­ry. It start­ed with Rus­sia’s mil­i­tary in­va­sion of Ukraine, which boost­ed oil prices and drove in­fla­tion rates to lev­els not seen in 40 years.

In re­sponse, in­ter­est rates were hiked, with cen­tral banks try­ing to cool down in­fla­tion­ary pres­sures. The year fin­ished with what some may call the burst of the cryp­tocur­ren­cy fren­zy.

It rep­re­sent­ed the end of bull mar­kets, which had re­bound­ed quick­ly from Covid19, and most an­a­lysts agree that a re­ces­sion is like­ly in 2023.

In fact, 2022 was the first year ever that Sov­er­eign Wealth Funds (SWFs) shrank in val­ue. The scale of the drop is de­bat­able as most SWFs re­port with sig­nif­i­cant de­lays, if at all—but Glob­al SWF es­ti­mates the im­pact to­talled US$ 1 tril­lion. Sim­i­lar­ly, Pub­lic Pen­sion Funds (PPFs) have re­duced their as­sets by US$ 1.3 tril­lion, with the sub­se­quent wors­en­ing of fund­ing ra­tios. These are pa­per loss­es and some of the funds will not see them re­alised in their role as long-term in­vestors, but it is quite telling of the mo­ment we are liv­ing.

The ma­jor chal­lenge of 2022 was the si­mul­ta­ne­ous and sig­nif­i­cant (>10 per cent) cor­rec­tion of bonds and stocks, which had not hap­pened in 50 years. This was not a US-iso­lat­ed event but was seen world­wide: of ma­jor in­dices, on­ly FTSE100 man­aged to close the year in green. The glob­al list­ed bench­marks for pri­vate mar­kets al­so dropped sig­nif­i­cant­ly, with in­fra­struc­ture and pri­vate cred­it be­ing the most pop­u­lar refuge.

Last­ly, hedge funds man­aged to avoid huge loss­es and gained some mo­men­tum as an as­set class among sov­er­eign in­vestors.

In 2022, state-owned in­vestors de­ployed more cap­i­tal in few­er deals than in 2021. In fact, the re­duc­tion in Ven­ture Cap­i­tal and the in­crease of mega-deals meant that the av­er­age tick­et of the year was US$0.35 bil­lion, which had not been record­ed in over five years. Com­pared to 2021, SWFs in­vest­ed 38% more, with US$152.5 bil­lion in 427 trans­ac­tions; while PPFs in­vest­ed 9 per cent less, with US$108.6 bil­lion in 320 deals.

The ma­jor chal­lenge of 2022 was the si­mul­ta­ne­ous and sig­nif­i­cant (>10 per cent) cor­rec­tion of bonds and stocks, which had not hap­pened in 50 years. This was not a US-iso­lat­ed event but was seen world­wide: of ma­jor in­dices, on­ly FTSE100 man­aged to close the year in green. The glob­al list­ed bench­marks for pri­vate mar­kets al­so dropped sig­nif­i­cant­ly, with in­fra­struc­ture and pri­vate cred­it be­ing the most pop­u­lar refuge.

Last­ly, hedge funds man­aged to avoid huge loss­es and gained some mo­men­tum as an as­set class among sov­er­eign in­vestors.

In 2022, state-owned in­vestors de­ployed more cap­i­tal in few­er deals than in 2021. In fact, the re­duc­tion in Ven­ture Cap­i­tal and the in­crease of mega-deals meant that the av­er­age tick­et of the year was US$0.35 bil­lion, which had not been record­ed in over five years.

Com­pared to 2021, SWFs in­vest­ed 38 per cent more, with US$ 152.5 bil­lion in 427 trans­ac­tions; while PPFs in­vest­ed 9% less, with US$ 108.6 bil­lion in 320 deals.

GIC (one of Sin­ga­pore’s sov­er­eign wealth funds) was once again the lead in­vestor with US$40.3 bil­lion de­ployed in 2022, 17 per cent more than in 2021. The Sin­ga­pore­an SWF is of­ten seen in some of the world’s largest deals, usu­al­ly in con­junc­tion with oth­er SOIs and pri­vate eq­ui­ty firms, and with a slight bias to­wards Eu­ro­pean and North Amer­i­can busi­ness­es. Be­hind GIC, five Gulf funds con­firmed their role as ma­jor glob­al deal­mak­ers: the three Abu Dhabi SWFs, plus PIF and QIA. The third ma­jor re­gion for out­bound cap­i­tal was Cana­da, de­spite low­er ac­tiv­i­ty than in re­cent years.

The re­gion­al pref­er­ences of the Top 10 in­vestors keep adapt­ing to the new fi­nan­cial en­vi­ron­ment and geopol­i­tics. Five of the funds in­vest­ed more in North Amer­i­ca, three fo­cused on Eu­rope, and on­ly ADQ con­tin­ued bet­ting on emerg­ing mar­kets. Over­all, on­ly 20 per cent of the cap­i­tal went in­to de­vel­op­ing economies.

In terms of in­dus­tries, the ac­tiv­i­ties of SOIs were a per­fect re­flec­tion of the eco­nom­ic changes. Funds lost in­ter­est in health­care, con­sumer, and tech­nol­o­gy (ie in ven­ture cap­i­tal), and grew their ap­petite for in­fra­struc­ture (most­ly trans­porta­tion), en­er­gy, in­dus­tri­als and fi­nan­cials. Re­al es­tate re­mained con­stant.

The ma­jor sto­ry of the year is the re-emer­gence of mega-deals, de­fined as in­vest­ments of US$1.0 bil­lion or more. The av­er­age tick­et size for SWFs in­creased to lev­els not seen since 2016, and there were a to­tal of 60 mega-deals in 2022. Temasek’s El­e­ment Ma­te­ri­als and GIC’s Store Cap­i­tal are now #2 and #3 of all time.

State-owned in­vestors al­so sus­tained sig­nif­i­cant di­vest­ment ac­tiv­i­ty, es­pe­cial­ly in the UAE. DP World sold a third of Jebel Ali to in­ter­na­tion­al in­vestors, Mubadala trans­ferred 25 per cent of OMV and Bo­re­alis to AD­NOC, and ADQ sold 8.6% of TAQA to Mul­ti­ply and ADPF. IPOs were al­so a great con­duit for sales, as Mid­dle East bours­es gained in vol­ume and trans­paren­cy. Cana­di­an funds al­so sold sev­er­al high val­ue as­sets.

Last­ly, we saw dif­fer­ent strate­gies when it came to pub­lic eq­ui­ties. Most sov­er­eign in­vestors sat on the sig­nif­i­cant loss­es and re­duced their ac­tiv­i­ty in the US mar­kets. This was not the case of PIF, who demon­strat­ed once again its bold strat­e­gy and bought US$ 7.6 bil­lion worth of new shares in ma­jor cor­po­ra­tions dur­ing Q2. NBIM, GIC and Temasek in­creased their port­fo­lio in In­di­an eq­ui­ties; how­ev­er, the ac­tiv­i­ty and val­ue of Chi­nese A shares de­nom­i­nat­ed in RMB owned by sov­er­eign in­vestors de­creased sig­nif­i­cant­ly dur­ing 2022.

Once again, the re­port looks for­ward by list­ing the ma­jor events of 2023, try­ing to pre­dict what the year may look like for sov­er­eign in­vestors—as ex­plained by Glob­al SWF se­nior ad­vis­er An­drew Rozanov.

In ad­di­tion, we look at three ma­jor trends that may as well con­tin­ue in 2023:

• ↓The re-emer­gence of Gulf SWFs, as im­por­tant fi­nanciers of West­ern as­sets, us­ing QIA as a case study

• ↓The bal­ance be­tween do­mes­tic and in­ter­na­tion­al in­vest­ments for SOIs, us­ing Temasek’s ex­am­ple

• ↓The in­creas­ing ac­tiv­i­ty of SOIs in re­new­able en­er­gy, us­ing the case study of Abu Dhabi’s Mas­dar.