Sunday, 23 May 2021

Sovereign Wealth Funds doubled their investments last year with a focus on domestic economic support

With an eye on local development, sovereign wealth funds nearly doubled their investments in 2020: Sovereign wealth funds’ direct investments last year grew to USD 65.9 bn, from USD 35.9 bn in 2019, the International Forum of Sovereign Wealth Funds said in its annual review. Supporting local industries and domestic development agendas throughout the pandemic was a key feature of funds’ 2020 investments, with funds deploying an estimated 22% of all capital towards direct investments in their local markets over the course of the year.

Tech, e-commerce, and ESG had their day in the sun: Investment in digitalization and climate friendly initiatives has also accelerated this year, with a continued interest in e-commerce renewables comprising some USD 11.5 bn last year. E-commerce related industries, including companies involved in logistics and warehouse management, locked down USD 9 bn in investments from SWFs last year, amid expectations that some degree of remote work and learning will be a mainstay of our post-covid life. The funds also ramped up investments in climate change-related sectors like agritech, forestry and renewable energy, pushing out USD 2.45 bn in 23 green investments — a 118% y-o-y jump from USD 1.1 in 2019.

In some cases, SWFs were called on for direct fiscal support to governments: Norway’s Government Pension Fund Global — the world’s largest SWF — contributed some USD 37 bn (or 3% of the fund’s capital) to cushion the strain on state coffers, as pandemic spending dramatically rose over 2020. In Chile, the country’s finance ministry withdrew USD 1.1 bn from the Economic and Social Stabilization Fund to service its external debt, in addition to a seperate USD 2 bn withdrawal to support collapsing commodity prices.

Others have stepped in to recuperate domestic industry: Ireland’s Strategic Investment Fund worked in coordination with the Irish government in its response to the pandemic, committing some USD 2.4 bn to the country’s Pandemic Stabilization and Recovery Fund and allocating 90% of its direct and indirect investments to businesses hard hit by the pandemic. Singapore’s Temasek Holdings also focused heavily on supporting local safety protocols and participated in the revival of national air carrier, Singapore Airlines, through a USD 2 bn rights issuance.

And then there’s Russia’s SWF, whose investment led to the Sputnik V jab: The Russian Direct Investment Fund, meanwhile, invested heavily last year in directly confronting the spread of the virus by ramping up spending on covid-19 diagnostics systems and antiviral drug production before ultimately financing the production of the Sputnik V vaccine.

The Sovereign Fund of Egypt has also signaled it will shift its investment priorities to adjust to the pandemic reality: The SFE last year said it will focus on healthcare, pharma storage, electricity, agriculture, and other sectors that were deemed crucial to support at the onset of the pandemic. Sub-funds, established by the SFE in the form of private equity vehicles, have been created to focus on investments in specific industries like healthcare, infrastructure, fintech, and real estate. Last year has also been a boon for African SWFs that have expanded their investments at home in areas such as health, digital tech and agribusiness.

Despite a more domestic-oriented strategy dominating SWF investments last year, that’s not where everyone has been focused: Saudi Arabia’s PIF has spent more than USD 10 bn snapping up shares in US and European blue-chip companies last year at historic lows as interest in travel, entertainment and energy plummeted. Low prices in 1H2020 have attracted some SWFs to invest proportionally more in equities than in real estate and infrastructure, which increased y-o-y, but follows a downward trend over the long term.

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