Sovereign Development Funds (SDFs) have grown from 20 to 100 in 20 years. Indonesia is the latest country to announce plans to set up a fund. The EU 27 is considering a fund to finance European industrial champions. SWF assets currently grow at an estimated $400-500 billion a year, says Scott Kalb, now chairman of the Sovereign Investor Institute at Institutional Investor.
16 governments from Asia, Africa, Europe, Latin America and Middle East have set up their own SDF, with the most recent cases in Indonesia and South Africa. Around 52 SDFs manage approximately $1.6 trillion in assets, says Diego López, managing director, Global Sovereign Wealth Fund Capital in New York. For many countries it’s also an effort to counter dwindling foreign direct investment.
“SWFs are definitely speaking to new development funds about specific investments and partnerships,’ says Bonfield. Gulf-based SWFs in new SDFs in South Africa, Ghana, Kenya and Egypt. “Emerging and frontier markets have so much potential but so little is investable,” said Bonfield, who predicts new funds could steer more investment to emerging markets.
ISIF’s relationship with the government was recently tested – and strengthened – when the fund shook off pressure to withdraw funds. In a bid to diversify its plain vanilla portfolio, ISIF is about to invest 5 per cent in private equity, focused on the secondaries market. The fund is externally managed via three relationships, and Santiago states that the private equity allocation will likely involve a new relationship.
The $940 billion China Investment Corporation now counts alternatives as 44.1 per cent of its overseas investment portfolio, up from 39.3 per cent in 2017. It’s a trend Kalb believes is as significant as SWFs rising number, and assets under management. “Allocations to private market strategies have been going up,” says Kalb. Ten years from now, half will have up to 30 per cent. in private markets and a quarter will have. up to 50 per cent, he says.
India’s NIIF illustrates a parallel in-sourcing trend. It has built a 55-strong team where the focus has recently evolved to building out operational and technical skills as well as ESG. The fund of funds (it also has a master fund and a strategic opportunities fund, all focused on core infrastructure and related sectors) is also playing an important role seeding local managers.
Wealth2
The rise of the Sovereign Wealth Fund