Home / Analysis / Sovereign wealth funds in a disappointing year

Sovereign wealth funds in a disappointing year

The world’s most transparent sovereign wealth and pension funds have returned “disappointing results” as the drop in bond and stock prices finally kneecapped a decade of growth.
Analysis

The world’s most transparent sovereign wealth and pension funds have returned “disappointing results” as the drop in bond and stock prices finally kneecapped a decade of growth, according to Global SWF’s August report.

While it’s too early to issue a definite statement, Global SWF (headed up by Diego Lopez, photo at top) says 2022 might finally be the year in which the size of the industry declines, as measured by its AUM– something that neither the GFC nor Covid-19 managed to do.

Norges Bank Investment Management, the world’s largest sovereign wealth fund, returned -4.9 per cent in the first quarter off the back of its massive passive exposure to listed equities. That translates to a loss of US$73 billion, and its second quarter numbers, which will be released in mid-August, may be “much worse”. CalPERS has returned -12.5 per cent (a loss of US$63 billion), while Japan’s GPIF, the world’s largest public pension fund, managed a relatively good return of -1.1 per cent due to its exposure to domestic markets.

“In this context, Global SWF has estimated the underlying losses the industry may have experienced during the first and second quarters of the year,” the report says. “Overall, SWFs may have lost US$ 2.1 trillion and PPFs, US$3.9 trillion, totalling US$6.0 trillion (-18 per cent of AUM).”

“It is important to highlight that these are not realized losses and may not be reflected in our updates if the funds do not choose to report or to take them, depending on their accounting standards.”

Still, there’s a silver lining for the 50 per cent of SWFs sourced from commodities, which are poised to receive large surpluses by year-end off the back of increased oil prices. Pension plans will also continue to receive net contributions from participants, albeit at a lower pace.

Investment activity in the first few months of 2022 also confirmed a trend that Global SWF has observed in recent years, with state-owned investors investing less in G7+ nations (66 per cent in FY17 to 55 per cent in YTD2022) and more in Brazil, Russia, India, and China (13 per cent to 23 per cent).

“In the context of a highly polarized world, this matters,” the report says.




Print Article

Related
‘Think differently to the next guy’: Paradice on why fundies falter

“If you have style drift and you move into the latest hot thing, you’re gonna get whipsawed… That’s usually the death knell of a fund manager, that style drift.”

Lachlan Maddock | 12th Aug 2022 | More
Time for super to get its purpose as industry counts early release cost

The spectre of early release still looms large over the industry, and super’s true believers want its purpose legislated to prevent Australia’s retirement savings from becoming a crisis piggy bank.

Lachlan Maddock | 12th Aug 2022 | More
US inflation news buoys market

Australian shares followed the US market higher on Thursday after the world’s largest economy reported easing inflationary pressures, helping to lower interest rate expectations. The benchmark S&P/ASX 200 gained 78.3 points, or 1.1 per cent, to close at 7,071 points, while the broader S&P/ASX All Ordinaries rose 86.7 points, or 1.2 per cent, to 7325.4 points. Most…

Drew Meredith | 12th Aug 2022 | More
Popular
1
The era of dip-buying is at an end
Lachlan Maddock | 13th Jul 2022 | More
2
Top 10 balanced funds in tough year
Greg Bright | 15th Jul 2022 | More
3
Funds rewarded by active management in a tough year
Lachlan Maddock | 20th Jul 2022 | More