Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Sovereign wealth fund rankings… and how they are investing
Two studies published in the past month have shed light on both the latest rankings, by assets, and how Sovereign Wealth Funds are investing those assets. Unlike many big pension funds, there is a big disparity in the cultures of sovereign funds and their investment styles. The definition of ‘sovereign wealth fund’ could also be seen as ‘loose’.
In the rankings by assets report, published by the US-based global commercial research firm Sovereign Wealth Fund Institute, Australia’s Future Fund is ranked 17th and New Zealand’s NZ Super 30th. However, there is a number of little-known Pacific Island funds, with assets of less than US1 billion, that make the ‘top 91’ list. The biggest is the Norway Government pension fund, with US$1.87 trillion, followed by the China Investment Corporation, which looks like the fastest growing SWF, with US$940.6 billion. The assets estimates are all in US dollars. The CIC has tripled in size in the past 10 years. At the lower end of the list are the Kirabati fund with US$608 million and the Tuvala Trust fund – both in the South Pacific – with US$130 million. The SWF Institute, which distributed its report on an institutional investment website, cautions that some of the numbers may be a little out of date.
The other study, that by fund manager Invesco, called ‘Global Sovereign Asset Management’, is the eighth in its series. It covers 83 sovereign funds and 56 central banks. It is also provided for institutional and professional investors and distributed via a commercial research distribution site. See here for details.
Rod Ringrow, the head of ‘official institutions’ for the big fund manager, says the five main themes in the report look to both build on the work of previous years and highlight new trends and themes that have emerged over the past year. “Fieldwork was carried out in the first quarter of 2020 as the implications of the Covid-19 pandemic were unfolding. Consequently, the response to the immediate shock and dramatic market movements dominated the focus for many respondents.,” he says. “Many were well prepared however, with drop-in valuations and plenty of dry powder making the crisis a good buying opportunity… Infrastructure was a focus for some, especially in electricity generation and communications.”
With the respect to the increasing importance of investing in and around climate change issues, the Invesco paper concludes: “Central banks and sovereigns are continuing to build climate concerns into their investment decisions while developing capabilities to detect, mitigate and capitalise on climate risks. These trends are likely to continue, but broader buy-in will come from guidance from policy makers and top institutional investors. Further leadership will also be needed from leading innovators in the investment community. Those who have focused on climate challenges for several years will need to ramp up their commitment. Their vocal support coupled with new creative solutions to fighting climate change can compel other investors to look at climate risks more closely.”
– G.B.
