Global sovereign wealth funds double AUM in the last decade

LONDON, June 14, 2023 (GLOBE NEWSWIRE) — Today Preqin, the global leader empowering the alternatives community with essential data and insight, published its Sovereign Wealth Funds 2023 report. The report provides data and analysis on key trends in the sovereign wealth funds landscape*, as these investors look towards making enhanced allocations to alternative assets, as well as narrowing the gap between actual and target allocations.

The report demonstrates that alternative assets will continue to have a place in the portfolios of sovereign wealth funds if they provide diversification benefits and good risk-adjusted returns. With their abundant financial resources and increasingly sophisticated investment teams, sovereign wealth funds have the kind of capital that can give them access to top-performing funds.

Preqin’s Sovereign Wealth Funds Report 2023 key facts:

• Assets under Management (AUM): In the last decade, global sovereign wealth funds have doubled their AUM total to $10.4tn by the end of Q1 2023.
• Asia: Asia’s sovereign wealth funds led the increase in AUM, standing at $4.3tn by the end of Q1 2023. Notably, China Investment Corporation’s total AUM of $1.35tn surpassed Norway’s Government Pension Fund Global (GPFG) AUM of $1.2tn to become the largest sovereign wealth fund in the world.
• Middle East: The Middle East is home to some of the largest sovereign wealth funds which hold the second most in AUM of all regions globally, behind Asia. At $3.7tn, they account for 36% of the global sovereign wealth fund AUM.
• Allocations: Allocations of sovereign wealth funds to alternative assets as percentages of total allocations increased between 2021 and March 2023 in all asset classes, except for infrastructure. The biggest increase in the current median allocation was in real estate, from 6.5% in 2021 to 8.6%, by the end of Q1 2023.
• ESG: Sovereign wealth funds are influential in promoting environmental, social and governance (ESG) goals. Sovereign wealth funds with an ESG policy represent 59% of total sovereign wealth fund AUM, up 5 percentage points from 54% in 2021.

Middle Eastern sovereign wealth funds show increased appetite for alternatives

As the sheer amount of fresh capital managed by Middle East-based sovereign wealth funds far exceeds the needs and capacity of their domestic capital markets, their appetite for alternative assets has risen. Preqin analysis of Middle East-based sovereign wealth fund data shows that the average allocations to alternatives have doubled year-over-year at the end of 2022, rising from 22% of total assets at the end of 2021 to 44%. While some of this is driven by the very high allocation levels of some of smaller sovereign wealth funds in the region, this trend reflects their ongoing pursuit of non-traditional assets to boost returns. Percentage allocations are also likely to be boosted by falls in the valuations of public equities and bonds in 2022, according to the latest data. The increase shows the flexibility that these Middle Eastern sovereign wealth funds have when making investment decisions, as they often have fewer short and medium-term liabilities than other types of institutional investors.

Growth in private debt

The Preqin report also found that global limited partners (LPs), including sovereign wealth funds, have developed a larger appetite for private debt in search of a steady income stream. Initially, one of the attractions of private debt was that it paid higher rates than public fixed income interest rates. However, as rates have increased, private debt has continued to attract investors. This is in part because the prevalent floating rate structures provide protection against rate rises.

According to Preqin, direct lending remains the most popular strategy, accounting for 46% of all 112 private debt fund commitments by sovereign wealth funds. As of the end of Q1 2023, the median current allocation to private debt is 2.5%, almost reaching the median target allocation of 2.6%.

Harsha Narayan, Managing Editor and lead author of the report at Preqin, says: “Sovereign wealth funds have continued to build sophisticated in-house teams and are increasingly able to act more like a fund manager when deploying capital. They leverage talent, technology, and partnerships, with fund managers and investors to invest in various alternative asset classes, and they are growing more competent to conduct direct or co-investment deals.”

If you would like more information or would like to speak with the report author, contact Mimi Celeste Taylor at [email protected]

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Notes to the editors

It is important to note that sovereign wealth funds (SWFs) are created with different objectives. Some are set up primarily for diversification and only invest globally outside of their home countries, whereas others invest domestically with the objective of boosting homegrown markets. Some SWFs, such as Norway’s GPFG, invest heavily in public markets and are relatively more conservative toward unlisted assets, while others take on more risk and pursue direct investments in more niche sectors. These factors affect how SWFs deploy capital.

* This report is based on insights and analysis of 95 sovereign wealth funds as defined and tracked by Preqin

About Preqin

Preqin, the Home of Alternatives, empowers financial professionals who invest in or allocate to alternatives with essential data and insight to make confident decisions. It supports them throughout the entire investment lifecycle with critical information and leading analytics solutions. The company has pioneered rigorous methods of collecting private data for 20 years, enabling more than 200,000 professionals globally to streamline how they raise capital, source deals and investments, understand performance, and stay informed. For more information visit www.preqin.com.

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