By MarcJones
LONDON (Reuters) – Sharp falls in stock and bond markets over the past year have slashed the combined value of global government wealth and public pension funds for the first time ever – by US$2.2 trillion, according to an annual study of the sector appreciated.
Industry specialist Global SWF’s report on sovereign investment vehicles found that the value of assets under management by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion, while the value of public pension funds fell to $20.8 trillion from $22.1 trillion trillions of dollars fell.
Global SWF’s Diego López said the main reason was the “simultaneous and significant” corrections of more than 10% suffered by the major bond and equity markets, a combination not seen in 50 years.
It came as Russia’s invasion of Ukraine pushed up commodity prices and pushed already rising inflation rates to 40-year highs. In response, the US Federal Reserve and other major central banks hiked interest rates, prompting a global market sell-off.
“These are paper losses and some of the funds will not realize them in their role as long-term investors,” Lopez said. “But it says a lot about the moment we’re living in.”
Graphic: State wealth and public pension funds hit by market problems, https://fingfx.thomsonreuters.com/gfx/mkt/byprllwawpe/Pasted%20image%201672418487721.png The report, which analyzed 455 state-owned investors with a combined value of $32 trillion in assets, found that Denmark’s ATP had its toughest year ever, with an estimated 45% slump costing Danish pensioners $34 billion.
Despite all the turmoil, funds spent on buying businesses, real estate or infrastructure still increased by 12% compared to 2021.
A record $257.5 billion was staked in 743 deals, with sovereign wealth funds also sealing a record number of “mega deals” worth over $1 billion.
Singapore’s $690 billion super-large GIC fund topped the chart, spending just over $39 billion in 72 deals. More than half of this flowed into real estate with a clear focus on logistics real estate.
The story goes on
In fact, five of the top 10 investments by state investors took place in 2022, starting in January when another Singapore company, Temasek, spent $7 billion to acquire testing, inspection and certification company Element Materials from the private equity fund to buy a bridge point.
Then, in March, Canada’s BCI agreed to acquire 60% of the UK’s National Grid Gas Transmission and Metering arm with Macquarie. Two months later, Italian wealth fund CDP Equity, along with Blackstone and Macquarie, spent $4.4 billion on Autostrade per l’Italia.
“If financial markets continue to fall in 2023, it is likely that sovereign wealth funds will continue to hunt elephants to meet their capital allocation requirements,” the report said.
It has prompted Gulf sovereign wealth funds such as ADIA, Mubadala, ADQ, PIF and QIA to become much more active in buying up Western companies after receiving large cash injections from oil revenues last year.
(Reporting by Marc Jones; Editing by Hugh Lawson)
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