The market misery caused sovereign wealth funds a historic setback in 2022, a study shows

SEVERE declines in stock and bond markets over the past year have reduced the combined value of the world’s sovereign wealth and public pension funds for the first time ever — by $2.2 trillion, according to an annual study of the sector estimated.

It also confirms that Ireland’s state-owned Ireland Strategic Investment Fund (ISIF) has been collectively ranked as one of the world’s top socially responsible sovereign investment funds.

Industry specialist Global SWF’s report on sovereign investment vehicles found that the value of assets under management by sovereign wealth funds fell from $11.5 trillion to $10.6 trillion, while the value of public pension funds fell from $22.1 trillion to $20.8 trillion dollar fell.

Ireland’s ISIF, with assets of around US$16bn (€15bn) when including nearly €10bn in co-investments, ranks 52nd in the world’s top 100 sovereign wealth funds by assets under management.

The largest is the $1.3 trillion China Investment Corporation.

Global SWF’s Diego López said the main reason was the “simultaneous and significant” corrections of more than 10 percent suffered by the major bond and stock 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 European Central Bank, US Federal Reserve and other major central banks hiked interest rates, prompting a global sell-off in markets.

“These are paper losses and some of the funds won’t realize them in their role as long-term investors,” Mr. López said. “But it says a lot about the moment we’re living in.”

The report, which includes 455 state-owned investors with total assets of $32 trillion

Despite all the turmoil, funds spent on buying businesses, real estate or infrastructure are still up 12 percent 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” in excess of $1 billion.

Singapore’s $690 billion super-large GIC fund topped the chart, spending just over $39 billion across 72 deals. More than half of this flowed into real estate with a clear focus on logistics real estate.

Five of the ten largest investments ever made by state investors occurred in January 2022, when another Singaporean vehicle, Temasek, spent $7 billion to buy testing, inspection and certification company Element Materials from private equity fund to buy Bridgepoint.

Then, in March, Canada’s BCI agreed to acquire 60 percent 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.