Sovereign and public pension fund assets reach record high of $31.9tn in 2021

For the first time ever, green energy investments of $23bn by state-owned investors in 2021 surpassed capital allocations to the oil and gas sector assets

Abu Dhabi’s Mubadala Investment Company was named the ‘Fund of the Year’ in its annual report for displaying high levels of deal activity. Courtesy: Mubadala

Assets managed by the world’s sovereign wealth funds and public pension funds reached a record high of $31.9 trillion in 2021, boosted by a rally in the US stock market and rising oil prices, according to a report by industry tracker Global SWF.

Assets held by sovereign wealth funds rose 6 per cent to $10.5tn during the year, while those managed by public pension funds climbed 8.7 per cent to $21.4tn, the annual report on state-owned investors showed.

These state-owned investors invested more capital than in any of the previous six years – both in terms of the value and volume of deals – collectively spending $219 billion on 854 deals.

Sovereign funds deployed $106.1bn on 500 transactions, up 19 per cent annually, while investments by pension funds rose to $112.9bn in 354 deals.

Singapore's wealth fund GIC accounted for most investments allocating $34.5bn in 110 deals, almost double of what it did in 2020. Nearly half of that capital was invested in real estate, with a focus on the logistics sector.

State-owned investors were also active sellers in 2021 and divested $32.1bn through 45 transactions, half of which involved property and infrastructure assets.

Emerging markets lagged in terms of investments, attracting only 22 per cent of the capital in 2021, making it one of the lowest figures in the last six years, according to the report.

Industries that have gained importance during the year are healthcare, retail, consumer and technology, all of which attracted venture capital.

Venture capital deployed by state-owned investors “absolutely boomed” in 2021, surging 81 per cent year-on-year to a record $18.2bn, with the number of deals more than doubling to 328, the report said.

“While VC remains a small slice of SOIs’ overall portfolios, allocations provide them with exposure to market disruptors with high growth potential,” the report said. “Valuations are at all-time highs encouraged by a fast pace of exits and strong liquidity potential, including IPOs [initial public offerings] and Spacs [special purpose acquisition companies]."

Only 120 of these VC investments went to Silicon Valley, with the rest distributed among 32 countries. State-owned investors switched preference to late-stage funding rounds including pre-IPOs, signalling the entry of newer and more risk-averse investors, the report said.

For the first time, sovereign and pension funds invested deployed more capital in renewable energy than in oil and gas, the report said. They spent $22.7bn in 37 green investments, including stakes in brownfield assets, investments in greenfield assets, shares in listed companies and commitments to new climate-focused funds.

“This milestone was a few years in the making and has concluded a trend that has been driven by social pressure and financial returns and accelerated by the Covid-19 pandemic,” the report said.

Global SWF designated Abu Dhabi’s Mubadala Investment Company as “Fund of the Year” in its annual report as the emirate’s strategic investment arm displayed high levels of deal activity, played a crucial role at home in the economic recovery and pursued agreements with governments around the world.

“As a responsible investor, we are committed to supporting the economic diversification of Abu Dhabi while leaving a positive lasting impact on the communities where we invest worldwide," Ahmed Al Calily, Mubadala’s chief strategy and risk officer, was cited as saying by Global SWF in the report.

Looking into 2022, global investors will continue to watch China closely, the report said.

Sports, space and health care are expected to be industries of interest for state-owned investors this year.

The Winter Olympics, to be held in Beijing in February, may bring some investment opportunities.

“We would not be surprised if we see more clubs acquired or sponsorship deals struck... by Gulf SWFs in the next 11 months,” the report said.

The space race may also at last “awaken significant interest” given the expected boom in space tourism, it said.

Health care will continue to be an “important part” of sovereign investors’ portfolios and activities.

“The pandemic is changing the way in which SOIs invest and healthcare has come into focus as a source of significant long-term yield. Coronavirus is set to be an ongoing multi-year threat, adding impetus to the radical shift in biotech and health-tech that has changed the dynamic of medicine research and development,“ the report said.

As 2022 progresses, state-owned investors will intensify their focus on research and development in virology with a view to keeping up with virus mutations. Demographics will also influence long-term trends with increasing focus on diseases and needs associated with rising affluence and an ageing population, it said.

In 2022, Israel, Namibia, Mozambique and Ethiopia are expected to launch sovereign wealth funds.

Global assets under management are expected to reach $53.6tn by the end of the decade, Global SWF said in its State-Owned Investors 2030 forecast.