Most countries globally are opting for the Sovereign Wealth Fund scenes over the guaranteed benefits driving the sector’s growth. However, some regions are taking the leading accounting for a significant share with enormous assets under management.
A Sovereign Wealth Fund (SWF) refers to an investment channel managed by a national or regional government. The government buys, holds, and sells securities or assets on behalf of its citizenry with the goal of earning economic returns.
According to data acquired by Finbold, as of October 2021, the global Sovereign Wealth Funds assets under management stand at $10.3 trillion. Asia and MENA regions account for the highest share of $7.8 trillion or 76.06% of the global value. Asia has $4.5 trillion, while MENA holds $3.2 trillion. Europe ranks third with AUM at $1.6 trillion, while Sub-Saharan Africa’s region accounts for the least share at $15 billion.
Elsewhere, Norges Bank Investment Management (NBIM) ranks the largest sovereign wealth fund globally with $1.3 trillion. The China Investment Corporation (CIC) ranks second at $1.6 trillion, followed by Abu Dhabi Investment Authority (ADIA) at $829 billion. Overall, the ten largest Sovereign Funds hold 72.01% of global SWFs value at $7.43 trillion. Data on the global Sovereign Wealth Fund is provided by Global SWF.
Why Asia and MENA region reign in the SWF scene
Although the Asian region entered the Sovereign Wealth Fund scene more recently, it accounts for a significant share thanks to rapid economic growth in the last two decades. Several countries like China opted for multi-billion funds that are now competing on a global scale. Notably, China stands out considering that most of its investment portfolios defy traditions by exploring the private sector.
Worth noting is that Asia’s SWFs are not based on natural resource export revenues but conventional current account surpluses derived from non-resource exports. At the same time, capital inflows have also contributed to the region’s enormous SWF assets. Furthermore, Asian SWFs stand out because most were established to make as much money as possible.
Overall, the significant value of assets is because resource-rich countries aim to manage surplus revenues resulting in high numbers. Furthermore, more countries have realized the funds’ impact and positive returns, driving more interest into the space. For most countries, the funds are part of an effort to counter dwindling foreign direct investment.
The SWF scene has taken off recently despite recording slowed growth with low-interest rates and volatile stock markets. In general, the SWFs have not been impervious to adverse market conditions. Notably, the sector suffered the impact of the coronavirus pandemic.
Concerns about SWF
With Asia and MENA accounting for a significant share of the assets under management the sector has become a critical player in the global economy. With its large size, the region has a possible influence on global trade.
Notably, the huge asset accumulation has resulted in opposition and criticism from rival economic powerhouses like the U.S. The most expressed concern is that SWF investments may be motivated by political or strategic rather than commercial objectives. At the same time, most of the SWF are characterized by a lack of transparency which has emerged as a major concern for investors and regulators.
For instance, in the U.S., the political class has called for monitoring and control of the growing sovereign funds because they threaten the financial system. According to lawmakers, the funds can pose a threat to national security.