GCC sovereign wealth funds set for bigger role in 2023
Gulf sovereign wealth funds are expected to become more active and play a greater role in global markets in 2023, receiving significant capital injections derived from high oil revenues.
In the annual report usually released by specialist firm SWF Global, which analyzed 455 state-owned funds with combined assets of $32 trillion, sovereign wealth funds in the Middle East are poised to emerge stronger from the current economic scenario.
It is known that sovereign wealth funds in general are state-owned funds, and their resources consist of various assets such as land, stocks, bonds, state budget surpluses, cash reserve surpluses, the balance of payments surpluses… One of the oldest sovereign funds was the one established by Kuwait in 1953, known as the “General Investment Authority” in order to invest its surplus oil revenues to preserve the rights of future generations in this depleted resource. Then followed the rapid spread of these funds in all countries of the world to become these funds of the most important sources of foreign investment.
Middle Eastern sovereign wealth funds have doubled their investments in Western economies, including the United States and Europe, to $51.6 billion in 2022 from $21.8 billion in 2021.
“This means that investors in the Middle East are leading the pursuit of ‘cheap’ assets in Europe including the UK and US, with limited competition from their international counterparts. “While payments in 2008 focused only on financial institutions, it is Middle East funds that today have this privileged position to chase deals across all industries,” the report said.
40 state-owned investors in the Middle East manage $4.8 trillion in financial capital and 12,000 employees in human capital, according to the report.
Middle Eastern sovereign wealth funds, particularly those in the Gulf, are well positioned due to the average oil price of $99 per barrel and the peg of their currencies to these countries.
“For GCC economies with low fiscal spending, this translates into large surpluses, which were transferred to some sovereign funds at the end of the year. Therefore, large, more liquid, and world-focused provident funds, including the Abu Dhabi Investment Authority in Abu Dhabi, KIA of Kuwait, and Qatar Investment Authority in Qatar, will receive significant capital inflows.”
According to Diego Lopez, founder and managing director of global sovereign wealth funds, “We expect to see increased activity and an increased role for GCC sovereign wealth funds in global markets. Middle East sovereign wealth funds are more prepared than ever to shine.”
In contrast, the report showed that large declines in equity and bond markets over the past year have reduced the combined value of the world’s sovereign wealth and public pension funds, for the first time ever.
The report found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion.
The report also found that Denmark’s ATP had the toughest year anywhere, falling 45 percent.
The Norwegian wealth fund, the world’s largest and manager of $1.15 trillion in assets, posted a loss of 449 billion Norwegian crowns ($43.47 billion) in the third quarter of 2022, hit by rising interest rates, inflation, and war in Europe.
Diego Lopez said the main driver was the “simultaneous and significant” corrections suffered by major bond and stock markets, a combination that has not happened in 50 years.
These clubs should be watched in 2023 as major challenges and turmoil ahead due to political turmoil, continue to point to much higher levels of uncertainty and volatility in the coming period.
For more on wealth funds, click here.