The sovereign wealth funds’ direct investments almost doubled last year to $65.9 billion, up from $35.9 billion in 2019 in sectors such as renewable energy, food production, eCommerce and logistics, as per a recent report.
According to the report from the International Forum of Sovereign Wealth Funds (IFSWF), a significant portion of that investment made last year was at homeland as funds sought to reduce the impact of the COVID-19 crisis on their economies. For the first time, savings funds invested less than sovereign development funds and hybrid funds.
Savings funds usually have a remit to deliver long-term financial returns by investing in markets, while development funds are focused more on helping to develop their local economies. Hybrid funds typically have more than one mandate.
“Institutional investors, including sovereign wealth funds, entered the pandemic with high levels of cash. Consequently, they were ready to support local economies or buy opportunistically in distressed international markets in March 2020,” said the report.
Last year, sovereign funds made $48.6 billion in direct equity investments, more than twice the amount deployed in 2019, while $9.1 billion was invested in real estate and $8.2 billion in infrastructure, the report said.
Many sovereign funds were required to support domestic businesses in the pandemic’s wake in 2020. Examples include Turkey’s fund injecting $2.5 billion into three state banks and Singapore’s Temasek Holdings supporting a $1.5 billion rights issue by Sembcorp Marine.
In 2020, as a consequence of the pandemic, sovereign funds deployed 22 percent of all capital towards direct investments in their local markets, the IFSWF report found. That compares with an average of around 13 percent in the previous five years.
Climate change was another trend in 2020, sovereign wealth funds made 23 investments valued at over $2 billion in climate-change-related sectors, such as agritech, forestry and renewable energy which marks a four-fold increase from 2016.