Assets under management held in sovereign wealth and public pension funds reached a record $31.9 trillion due to strong returns from American stock markets and rising oil prices as global economies recover from pandemic-era lockdowns.
Sovereign wealth funds (SWF) grew 6 percent from $9.9 trillion in 2020 to $10.5 trillion last year, passing the $10 trillion mark for the first time in history, according to a recent report by industry specialist Global SWF. Assets managed by public pension funds (PPF) increased over 9 percent from $19.6 trillion to $21.4 trillion in 2021.
“In the 21 months to the end of 2021, the S&P500 has more than doubled, the Dow Jones Industrial Average grew 90 percent, and the S&P 1,200 Global Index was up 86 percent. And, for better or for worse, sovereign wealth funds and public pension funds still have a very significant exposure to American stocks—which has allowed most to score their best ever results, and to boost their AuM,” according to the report.
Many new funds were also established in 2021 contributing to rising assets under management (AUM) of state-owned investors (SOI). Real estate had the highest return among asset classes with a 42.5 percent growth, followed by private equity at 37.8 percent.
Public equities expanded by about 20 percent along with hedge funds and infrastructure assets which also went up compared to 2020. However, fixed income showed a decline of about 1 percent.
A total of 854 deals were undertaken by SOIs in 2021, deploying more than $219 billion, the highest figure in any of the previous six years. This is an increase of over 31 percent from the $166.9 billion in 2020 and a 26 percent growth from pre-pandemic 2019’s $173.6 billion. SWFs deployed $106.1 billion in 500 transactions while PPFs invested $112.9 billion in 354 deals.
Norwegian oil fund NBIM led the tally of SWFs with $1,332 billion of AUM, followed by China Investment Corporation (CIC) with assets of $1,222 billion and Abu Dhabi Investment Authority (ADIA) with $829 billion.
As for PPFs, Japan’s Government Pension Investment Fund led with $1,747 billion AUM. The National Pension Service of Korea came in second with $776 billion, and the U.S. government’s Federal Retirement Thrift Investment Board (FRTIB) was third in the list with assets of $735 billion.
Health care was one of the most popular bets during 2021 with SOIs investing almost $13.4 billion in the sector. The funds also showed a particular interest in biotech as COVID-19-related lockdowns wreaked havoc on world economies. While ADIA and Singapore’s Temasek backed Moderna and BioNTech respectively, NBIM owned stock in Sinopharm, Johnson&Johnson, and AstraZeneca.
Australia emerged as a hot destination for public fund investment last year as $23.8 billion was poured into infrastructure and private equities in the country.
Public funds invested around $18.2 billion in venture capital in 2021, an increase of more than 81 percent from the previous year, with 328 deals, almost double that of 2020.
The “Fund of the Year” went to Abu Dhabi-based Mubadala for its significant contribution to the development of Abu Dhabi, the capital of United Arab Emirates and one of the richest cities in the world, and its track record of investments and divestments.
After Beijing and Oslo, Abu Dhabi is one of the most prominent regions in sovereign funds, managing over $1.3 trillion through four different SWFs: ADIA, Mubadala, ADQ, and EIA.
The biggest investor last year was Singapore-based GIC, which put down $34.5 billion in 110 deals. Canada Pension Plan (CPP) followed with $23.7 billion, a majority of which was invested in real estate.
A bulk of both funds were invested in North American assets. Emerging markets managed to attract only 22 percent of SOI capital, the lowest figure in six years.
Popular industries for investing included health care, retail and consumer, and technology. Besides private companies, public funds showed a keen interest in global stock markets.
The report expects global AUM for public funds to reach $53.6 trillion by the end of the decade as countries like Germany and Switzerland get more involved in sovereign wealth funds. Rio de Janeiro and Cape Verde launched funds in 2021 with Israel and Bahamas expected to start SWFs this year.
The global SWF 2022 report analyzed data from 161 sovereign wealth funds and 275 public pension funds.