Sovereign Wealth Funds 2023 1

Preqin
Sovereign Wealth Funds
2023
Sovereign Wealth Funds 2023 2

Contents
Acknowledgements 3 Foreword

Lead Analysts 4 SWFs: in numbers

Harsha Narayan, CAIA 5 The ever-expanding importance of SWFs –

Valerie Kor
Caroline Rolle
In-House Contributor
Grant Murgatroyd
External Contributors
David Neuenhaus & Eric
Janowak, KPMG in the US
Angela Summonte, Alter Domus
David Neuenhaus & Eric Janowak, KPMG in the US
7 The evolving relationship between SWFs and alternatives
21 ESG gains traction with more SWFs
28 Accelerating data collection in a turbulent and ESG-conscious market –
Angela Summonte, Alter Domus
29 Middle East SWFs maintain resilient growth amid economic uncertainty

Executive Editor
Lizzie Carroll

Copy Editors
Danny McCance
Jasmin Naim

In-House Designers
James Flanagan
Logan Scales
Tim Short

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Sovereign Wealth Funds 2023
Foreword
Welcome to Preqin’s
2023 Sovereign Wealth
Funds report
3
Last year was eventful for private markets. However, the impacts were mixed for
sovereign wealth funds (SWFs). Volatility in the markets, marked by simultaneous
negative returns in both equity and bond markets, led to portfolio losses in some
of the largest SWFs. On the other hand, funds backed by oil revenues benefited
from higher energy prices, driven by demand from the post-COVID-19 recovery and
supply shortages from the war in Ukraine. In all, as SWFs grow larger and more
sophisticated, assets under management (AUM) of SWFs, as defined and tracked
by Preqin, have risen to $10.4tn as of March 2023, up by 19% from December 2021.
Asia’s SWFs have led the increase in AUM, with total AUM rising by 31% since
December 2021, to stand at $4.3tn as of March 2023. Notably, China Investment
Corporation’s total AUM of $1.4tn has surpassed Norway’s Government Pension
Fund Global (GPFG) AUM of $1.2tn to become the largest SWF. The increase was
attributed to the outperformance of overseas investments and smaller allocations
to public equity over the years in favor of allocating to alternatives.
Over the years, SWFs have become committed investors in alternatives,
driven by the need for diversification and higher returns. Median target allocations
to alternative assets as a percentage of total AUM have remained constant
or increased slightly since 2021. Current allocations as a percentage of total
allocations rose between the end of 2021 and March 2023 in all asset classes
except for infrastructure. The biggest increase in current median allocation was in
real estate, from 6.5% in 2021 to a record 8.6% in March 2023.
SWFs are also influential in promoting ESG goals. The percentage of SWFs
with an ESG policy has been growing, from 21% of the 95 funds tracked in Preqin's
2021 Sovereign Wealth Funds in Motion report to 24% as of March 2023. Similarly,
this 24% now represents 59% of SWF AUM, up from 54% in 2021. To achieve net-
zero carbon goals set by their respective nations, SWFs have been actively driving
their portfolio companies toward achieving net-zero emissions. At the same time,
SWFs are also increasingly focusing on social issues. Specifically, they are divesting
from errant companies, such as those associated with human rights abuses.
SWFs have continued to build sophisticated in-house teams and are
increasingly able to act more like a GP when deploying capital. They leverage talent,
technology, and partnerships with GPs and LPs to invest in various alternative
asset classes, and they are growing more competent at conducting direct or co-
investment deals.
Sovereign Wealth Funds 2023
SWFs: in numbers
$10.4tn
Sovereign wealth fund (SWF) assets under
management (AUM) as of March 2023, more
than doubling over the past decade
$4.3tn
Asian SWF AUM as of March 2023, up by 31%
from December 2021
8
out of 17 Asia-based SWFs have an ESG
policy – the highest of all regions (47%)
4
1.8x
Growth in AUM of Middle Eastern SWFs over
the last decade
2.1%
Increase in median SWF allocation to real
estate between 2021 and March 2023, the
highest of all asset classes
59%
of total tracked global SWFs AUM belongs to
SWFs with an ESG policy
Source: Preqin Pro. Data as of March 2023
Sponsored by:
The ever-expanding importance of SWFs
David Neuenhaus & Eric Janowak at KPMG talk about the significance of sovereign wealth
funds as they apply more active investment models to their growing capital base
The aggregate assets under management (AUM) of sovereign
wealth funds (SWFs), including public pensions, is enormous
by any standard. While estimates vary, $33tn serves as a fair
approximation.1 Increasingly, the importance of this special
class of asset owners cannot be measured by AUM alone.
Many SWFs continue to evolve toward more active and
direct investment models, with a corresponding expansion
of in-house enabling skillsets. As enhanced capabilities are
applied to an ever-expanding capital base, the significance
of SWFs continues to increase. It should be anticipated that
the ascension of SWFs will continue, with a few key trends
to watch in the coming years.
Taking the lead
SWFs have long been involved in consortiums and
co-investment arrangements with fund sponsors and
managers. These arrangements have historically been
led by fund sponsors, leveraging SWF participation as
limited partners. Many SWFs, enabled by their increased
capabilities and know-how, now have the wherewithal
to lead such consortium opportunities themselves. We
expect this to continue as SWFs gain experience. Further,
such arrangements can provide improved economics and
investment governance for investors.
Perhaps the most interesting step in evolutionary
terms is a movement of certain sophisticated SWFs
toward marketing and monetizing their expertise to other
SWFs, highlighting their unique common alignment, and
understanding of their peers’ demands. For instance,
SWFs can establish affiliated management companies
to offer fee-generating asset management expertise to
other investors. These arrangements can leverage a SWF’s
relationships and provide opportunities to monetize existing
portfolios, while reducing concentration in certain assets
by syndicating interests to third parties. In the past, certain
SWFs had considered – but ultimately abandoned – such
arrangements. While challenges remain, the new and
improved capabilities of SWFs have renewed both the
potential viability of and interest in such ventures.
Expanding the aperture
SWF investors have long sat atop the league tables
of capital invested into private equity, real estate,
infrastructure, and other core alternative asset classes.
As the need to diversify increases and in-house expertise
1
Sovereign Wealth Funds and Public Pension Funds Data Platform - Global SWF – https://globalswf.com/
5
David Neuenhaus
Partner
KPMG in the US
Eric Janowak
Managing Director
KPMG in the US
expands, so too does the ability to invest in an ever-
expanding universe of assets. For example, SWFs are
increasingly investing in early-stage, innovation-driven
businesses, often alongside established venture capital (VC)
participants. Only a few years ago, the allocation of capital
by SWFs to VC-type opportunities was quite limited and
almost exclusively facilitated through indirect investments
as limited partners. Today, a growing number of sovereigns
have dedicated teams focused on direct investment into
early venture opportunities, with many SWFs establishing
offices directly in VC-rich locations for greater exposure and
access to deal flow.
Credit is another evolving space to watch. Credit as
an asset class has flourished for many non-bank investors
since 2008, with many alternative lenders stepping in to
fill the space left by banks and regulatory requirements.
SWFs have been active participants, first as investors in
secondary positions, and then by expanded participation in
origination arrangements. For instance, some SWFs have
invested in private credit fund managers, while some have
formed partnerships with credit managers. Others have
established direct origination platforms, staffed by their
own underwriting teams. Regardless of the structures used,
the need for private debt will continue to grow, and SWFs
will likely be at the forefront of the funding solutions for
private credit needs.
Sponsored by: 6

Fleet of foot in climate and human rights discussions, advanced the

The most nascent trend may be a gradual but growing
interest by SWFs in assets other than those of a strictly
long-term nature. Shorter-term investments have always
occurred from time to time, but the frequency of strategic,
short-term investments appears to be accelerating, as SWFs
can lean into their investment expertise to capitalize on
opportunistic, high-return situations. SWFs have improved
their ability to identify, analyze, and execute investment
opportunities where time is of the essence (on both the buy
and sell side, across front office, back office, and investment
committee processes). Of course, patient capital and long-
term portfolio management will always be core to SWFs,
but the ability and willingness to move strategically and
quickly when short-term opportunities present themselves
is a trend worth noting.
The relationship between SWFs and ESG
Finally, we end with the impact of SWFs on environmental,
social, and governance (ESG)-related trends. While ESG
packaging is relatively new, the substance has existed
for some time. For example, the US established the
Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA) to remediate hazardous
environmental areas (‘Superfund’ sites) in 1980, but poor
governance has long been a concern for investors due
to mixed records of success. However, the importance of
ESG as a concept, which is gaining traction as a prioritized
aggregate of concerns, may have been strengthened by
SWFs wielding the ‘golden rule’. SWFs made it clear that
capital would not be committed without the engagement of
ESG principles by companies and managers seeking capital.
As governments, NGOs, and industry participants engaged
United Nations (UN) Sustainable Development Goals, and
promoted the UN Principles for Responsible Investment,
SWFs provided the muscle to bring these concepts to bear.
We expect ESG considerations to continue to be a common
precondition for investment commitments by SWFs.
Where to from here?
SWFs are central to many important, positive capital market
trends. But these trends are not without headwinds. How
might investee countries and territories and other market
participants react? While governments and managers
compete to attract the capital of SWFs, there are limitations.
There are examples of protectionism and geopolitical
issues that continue to pose significant challenges. Cross-
border sovereign investment can be a sensitive topic and is
sometimes viewed as a threat to the economic and political
sovereignty of the recipient country when large sums or
potentially sensitive assets are involved. Yet the tailwind
may be that SWFs, in conjunction with other institutional
investors, can help steady markets when faced with serious
global challenges.
It will be critical for SWFs to balance their role as
investors with the needs of regulators, governments,
counterparties, and the public. SWFs are unique stewards of
capital, generally sharing one of three common objectives:
stability, savings, and/or local development. It is important
that stakeholders understand the objectives, how they
align for common benefit, and how they serve as both a
natural governor to the pursuits of SWFs and a positive
influence within the investment community. By working
together, these trends can be harnessed for the common
benefit of all.

David leads KPMG’s Global Institutional Investor Tax network and serves as the firm’s Partner in Charge − Tax, for the NY
Financial Services business unit. David has more than 25 years of experience advising many of the world's largest and most
complex public pension systems, sovereign wealth funds, and asset managers as they navigate the ever-evolving challenges
and opportunities that confront the industry.

Eric is a Managing Director in KPMG’s NY Financial Services Tax practice and the Deputy lead for the Global Institutional
Investor Tax network, which includes Sovereign Wealth and Pension Funds. Based in London, Eric specializes in structuring
and tax advisory for sovereign investors, as well as cross-border asset management. He has extensive experience working
with sovereign wealth funds, institutional investors, and alternative asset managers. Prior to KPMG, Eric worked as an
attorney and in-house tax counsel for a global investment bank, a sovereign wealth fund, and an alternative asset manager.
Sovereign Wealth Funds 2023
The evolving
relationship
between SWFs
and alternatives
The evolution of
SWFs in private
markets: from passive
investors to strategic
dealmakers in the face
of market volatility
7
The macroeconomic landscape has shifted significantly since Preqin published
the Sovereign Wealth Funds in Motion report in 2021.1 At that time, we noted that
sovereign wealth funds (SWFs) were, in general, increasing allocations to alternative
assets, and narrowing the gap between actual and target allocations.
The events of 2022 had a mixed effect on SWFs. Funds backed by oil
revenues benefited from higher energy prices, driven by demand from the
post-pandemic recovery and supply shortages from the war in Ukraine. On
the other hand, many funds suffered large losses from the volatility in global
financial markets.
For example, the Hong Kong Monetary Authority Exchange Fund2 suffered a
record loss of $25.8bn in 2022,3 while Norway’s Government Pension Fund Global
(GPFG)4 reported more than $164bn in losses for 2022,5 the largest decline in its
30-year history. Both funds attributed the losses to simultaneous negative returns
in both equity and bond markets in an unusually volatile year.6 While the rebound
in stock markets during the first quarter of 2023 was good news for SWFs heavily
weighted toward public equities, the outlook remains uncertain and challenging.
Diversification crucial amid uncertainty
Alternative assets provide diversification benefits to safeguard wealth for
investors, a benefit that became more important last year to LPs surveyed
regularly for Preqin’s Investor Outlook. In the November 2022 survey, respondents
said diversification was one of the most important reasons for investing in all
alternative asset classes.7
1
https://www.preqin.com/insights/research/reports/sovereign-wealth-funds-in-motion
2
https://pro.preqin.com/investor/16194
3
https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/01/20230130-3/
4
https://pro.preqin.com/investor/3576
5
https://www.nbim.no/contentassets/99de366397a847db99ab7a156e15aaa0/gpfg_annual-
report-2022.pdf
6
https://www.cnbc.com/2023/01/31/norways-sovereign-wealth-fund-loses-164-billion-in-2022.
html
7
https://www.preqin.com/insights/research/investor-outlooks/preqin-investor-outlook-
alternative-assets-h1-2023
 Sovereign Wealth Funds 2023 8

Most SWFs were set up by governments to preserve and grow the nation’s wealth,
and to pass it on to future generations. Over the years, their roles have broadened
to include new functions or remits, such as acting as a stabilizing force for national
economies during uncertain times. For SWFs that manage capital from natural
resources, such as oil, diversifying through other investment vehicles helps to
hedge against fluctuations in commodity prices. With low liquidity needs and a
long investment horizon, the investment goals of SWFs are well matched with
alternative investments.
Over the past two years, SWFs have proved themselves to be committed
investors in alternatives. Median target allocations as a percentage of total
assets under management (AUM) to each asset class have remained constant
or increased slightly since 2021, with a combined median target of 43.6% across
all asset classes (Figs. 1.5 to 1.10). Current allocations to alternative assets as
percentages of total AUM have also gone up between 2021 and March 2023 in
all asset classes, except for infrastructure, with the combined median current
allocation across all asset classes currently at 40%. The biggest increase
in the current median allocation was in real estate, from 6.5% in 2021 to
8.6% in March 2023.

Fig. 1.1: SWF assets under management by region, 2013 − March 2023

12
Assets under management

10

8
($tn)

0
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Mar-23
North America Europe Asia Middle East Rest of World

Source: Preqin Pro

Fig. 1.2: Proportion of SWFs investing in each asset class, 2018 vs. 2023

80%
70%
Proportion of SWFs

60%
50%
40%
30%
20%
10%
0%
Private equity Private debt Hedge funds Real estate Infrastructure Natural resources
2018 2023

Source: Preqin Pro. Data as of March 2023

Sovereign Wealth Funds 2023 9

The uncertainty surrounding global trade patterns has led many

institutional investors to adopt a more cautious approach to asset
allocation and to increase their exposure to alternative investments
as a defensive strategy. With alternatives offering a different risk-
reward profile, HKMA has been interested in the asset class against
the backdrop of our mandate of safeguarding monetary and banking
stability in Hong Kong. We have also seen more investment activities
in the alternative space in Hong Kong since the start of 2023.
Anson Law, Market Outreach Division, Hong Kong Monetary Authority

Growing in sophistication
SWFs have become more sophisticated when investing in alternative investments,
building large, dedicated, in-house investment teams. For example, the Abu Dhabi
Investment Authority (ADIA), which has $829bn in AUM,8 now employs more than
1,500 people from 67 countries.9
With their coffers filled by elevated energy prices, the more developed funds
are taking different investment approaches to the ones they adopted during the
mid-2000s oil price boom. ‘It’s not about the deal flow that is seeking us out. We
want the deal flow that fits with our strategic ambitions,’ Khaldoon Mubarak, chief
executive of Abu Dhabi-based SWF Mubadala Investment Company, which has
$276bn in AUM,10 said in an interview with the Financial Times: ‘In 2008 we reacted
well, but this time, our approach is more proactive and strategically deliberate.’11
Mubadala has been partnering with GPs to achieve its investment goals. In
2020, it took a stake in US technology buyout firm Silver Lake, committing $2bn
in a 25-year partnership deal. Last year, its asset management arm Mubadala
Capital announced a partnership with France-based private equity firm Ardian,
under which Ardian will invest $2.5bn in a secondaries portfolio of assets owned
and managed by Mubadala Capital. Mubadala has also entered into strategic
partnerships with KKR, Apollo, Ares, and BlackRock. Outside of alternative assets,
it has signed co-operation agreements with a range of financial and industrial
companies, including Barings, Sberbank, Schneider Electric, and Siemens Energy,
as well as government-level agreements to invest in priority sectors in countries
including the UK and France.12
In neighboring Qatar, Mansoor bin Ebrahim Al-Mahmoud, Chief Executive
Officer of the Qatar Investment Authority (QIA),13 said that compared to 2008,
the fund is now mature, well-established, and has a robust asset allocation
strategy. It is aiming to reposition its portfolio to focus on technology and financial
institutions, with an interest in renewable energy and the sports sector.14
SWFs are also embracing technology to lower costs and prevent losses.
Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), the
investment arm of GPFG, said that the fund is using artificial intelligence (AI)
to increase efficiency by reducing trading costs and complexity. AI is also used
with forensic accounting and linguistic analysis to weed out poorly performing

8
https://pro.preqin.com/investor/7648
9
https://www.adia.ae/En/pr/2021/operational-review.html
10
https://pro.preqin.com/investor/16170
11
https://www.ft.com/content/33a985a5-6955-4f44-869f-82e82e620581
12
https://www.mubadala.com/en/news
13
https://pro.preqin.com/investor/13085
14
https://www.qia.qa/en/Newsroom/Pages/QIA-CEO-discusses-future-investment-opportunities-
at-the-World-Economic-Forum-Annual-Meeting,-Davos-.aspx
 Sovereign Wealth Funds 2023 10

companies and mitigate losses. At the same time, Tangen believes that there is
not enough oversight in the AI sector, and has called for state regulation to help
mitigate some of the risks and challenges of AI.15

Asia- and Middle East-based SWFs drive AUM growth

In the last decade, global SWFs have doubled their AUM. Total AUM stood at
$10.4tn in March 2023 (Fig 1.1), a 19% increase from December 2021. The rise was
driven mainly by Asia-based SWFs, which grew their AUM by 31% to $4.3tn over
the same period, while AUM at Middle East-based SWFs grew by 19% to $3.7tn.
Meanwhile, the AUM of North America-based SWFs grew by 9% to $240bn since
December 2021, while the AUM of Europe-based SWFs remained relatively stable
at $1.9tn in March 2023.
The China Investment Corporation (CIC) has overtaken GPFG to become the
world’s largest SWF, with $1.4tn in total AUM,16 up by 44% in two years to surpass
GPFG’s $1.2tn. According to CIC’s Annual Report 2021, its overseas investments

15
https://www.ft.com/content/594a4f52-eb98-4da2-beca-4addcf9777c4
16
https://pro.preqin.com/investor/6994

Fig. 1.3: Number of SWFs established by region, 1955 − 2023

10

8
No. of SWFs

0
1955
1957
1959
1961
1963
1965
1967
1969

1981
1983
1985
1987
1989

2011
2013
2015
2017
2019
2021
2023
1971
1973
1975
1977
1979

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

North America Europe Asia Rest of World

Source: Preqin Pro. Data as of March 2023

Fig. 1.4: Current SWF AUM by region and year established, 1955 − 2023

1,600
Assets under management

1,400
1,200
1,000
($bn)

800
600
400
200
0
1955
1957
1959
1961
1963
1965
1967
1969

1981
1983
1985
1987
1989

2011
2013
2015
2017
2019
2021
2023
1971
1973
1975
1977
1979

1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

North America Europe Asia Rest of World

Source: Preqin Pro. Data as of March 2023

 Sovereign Wealth Funds 2023 11

outperformed, returning 14.27% during the year. Meanwhile, its annualized

cumulative net return over the past decade reached 8.73%, surpassing its target by
296 basis points.17
CIC has been reducing its allocation to public equity over the years to increase
allocation to alternatives, with a focus on new technologies and industries, as well
as ESG.18 Its objective is to diversify China’s foreign exchange holdings and generate
returns through overseas traditional and alternative investment portfolios, offshore
direct investments, and equity investments targeting major state-owned financial
enterprises. CIC is joined in the top five largest SWFs by AUM by fellow Asia-based
funds the State Administration of Foreign Exchange19 and Singapore's GIC,20 which
hold $817bn and $799bn, respectively.

Private equity and venture capital

One of the most popular alternative asset classes for SWFs is private equity. The
median allocation to private equity, including venture capital (VC), was 11.9% in
March 2023, still lower than the target allocation of 13.0%. The gap between current
and target allocations has fallen to 1.1%, the lowest since 2013 (Fig. 1.5), likely due to
more allocations to private equity funds in recent years. It could also be due to the
denominator effect, where decreases in the value of other assets have increased
the weighting of private equity, where the revaluations process is slower.
With the decline in public markets, some SWFs have paused or scaled back
on private equity commitments to avoid breaching their target allocations and
risk exposure. For instance, Alaska Permanent Fund Corporation21 said last year
that with the denominator effect impacting its investment portfolio, it will allocate
$1.2bn to new private equity commitments out of its $76.5bn AUM, lower than the
$1.6bn initially planned.22
Buyout funds are the dominant private equity strategy for SWFs, in part
because they can deploy large sums of capital into large funds. Almost half (45%)
of the private equity commitments of SWFs are in buyout funds, while 138 (20%)

17
http://www.china-inv.cn/chinainven/Media/2022-11/1002063.shtml
https://globalswf.com/news/alternatives-boosted-in-cic-s-global-investments-with-stress-on-
18

partnerships-and-external-management
19
https://pro.preqin.com/investor/18185
20
https://pro.preqin.com/investor/1523
21
https://pro.preqin.com/investor/2806/overview
22
https://www.wsj.com/articles/alaska-permanent-fund-to-slow-its-private-equity-
commitment-pace-11653002981

Fig. 1.5: Median SWF current and target allocations to private equity, 2013 − March 2023

20%
Allocation (as a % of AUM)

15%

10%

5%

0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mar-23
Gap Current allocation Target allocation

Source: Preqin Pro. Data as of March 2023

Sovereign Wealth Funds 2023 12

are in growth funds (Fig. 1.13). In private equity, SWFs typically partner with global
firms like Carlyle Group, EQT, Blackstone Group, and BlackRock, and invest in
relatively mature markets in North America and Europe.
SWFs have been taking a more active approach toward direct investments
and co-investments. This helps to diversify the overall portfolio, lower fees, and
mitigate the J-curve effect, as capital is deployed directly and quickly, allowing
SWFs to gain more hands-on investment experience. However, to directly invest
successfully in private companies, the funds need to acquire the skills and
experience of a GP to conduct tasks such as due diligence, and develop and
execute value-creation strategies.
Preqin’s Company Intelligence data reveals that GIC and Temasek Holdings
(which is also headquartered in Singapore) have been the most active SWFs
directly investing in private equity-backed buyouts and VC deals in the past
decade. GIC directly invested or co-invested in 272 known private equity-backed
deals between 2018 and May 2023, with an aggregate value of $352.2bn, while
Temasek Holdings is more active in the VC space, investing in 244 known deals
with an aggregate value of $74.7bn in the same period.
Some funds have preferred a partnership approach. FFor example, Mubadala tends
to invest alongside big Silicon Valley firms, like its recent investment in buy-now-
pay-later start-up Klarna, alongside Sequoia, Silver Lake, and the Canada Pension
Plan Investment Board. The deal was part of a $800mn financing round, despite
its value decreasing by 85%.23 Mubadala's participation demonstrates the ability
of SWFs to take a long-term view and invest with less concern about adverse
stakeholder reactions than other types of investors.
Saudi Arabia’s Public Investment Fund (PIF)24 is also one of the more active
private equity investors, having participated in 35 known private equity deals
between 2018 and May 2023, with an aggregate value of $8.1bn, and 30 known VC
deals, with an aggregate value of $19.7bn. It invests in line with the Vision 2030
strategy of modernizing the Kingdom by diversifying its economy and reducing
its reliance on oil revenues. One of the strategic sectors that PIF has identified
as having high potential for growth and innovation is e-sports and gaming. It has
purchased stakes in global game publishers Ubisoft, EA, Take Two, Nintendo, and
Activision through its subsidiary Savvy Games Group. This year, the group also
invested $265mn in Chinese e-sports company VSPO (then VSPN),25 bringing its
total investment in gaming to $38bn.26
There will be new opportunities for private equity fund managers when GPFG
starts allocating to private equity. GPFG has not been investing in unlisted equities,
although it does invest in unlisted real estate and infrastructure. A 2018 white
paper noted that investments in unlisted equities challenge the key characteristics
of the current management model, such as low asset management costs.
However, Norway’s Ministry of Finance expressed an openness to include unlisted
equity in its SWF strategy from this year, acknowledging that there is a ‘larger share
of value creation’ taking place in the unlisted market, and that the number of
listed companies is in decline. The ministry has asked NBIM to provide a detailed
assessment of the potential asset allocation change before deploying capital.27
SWFs also invest through VC funds to encourage the development of new
technologies. Temasek Holdings, for example, has subsidiaries like Vertex Holdings,
Clifford Capital, and Heliconia Capital Management, which invest in Singaporean
and regional companies. As well as aiming to achieve a financial return, the SWF is
looking to inject capital into Singapore’s start-up ecosystem.

23
https://www.cnbc.com/2022/07/11/klarna-valuation-plunges-85percent-as-buy-now-pay-later-
hype-fades.html
24
https://pro.preqin.com/investor/16244
https://www.preqin.com/insights/research/blogs/saudi-arabias-265mn-investment-in-vspn-
25

marks-apacs-largest-gaming-deal-since-2020
26
https://frontofficesports.com/saudi-arabia-pif-has-invested-38b-in-gaming/
https://www.nbim.no/en/publications/submissions-to-ministry/2023/the-fund-in-a-changing-
27

world--consultation-response/
 Sovereign Wealth Funds 2023 13

Private debt
Global LPs, including SWFs, have developed a larger appetite for private debt in
search of a steady income stream. Initially, one of the attractions of private debt
was that it paid higher rates than public fixed income interest rates. However, as
rates have increased it has continued to attract investors, in part because the
prevalent floating rate structures provide protection against rate rises. Private
debt accounts for 3.2% of portfolios among the top 10 state-owned investors
tracked by Global SWF, which include SWFs CIC, GIC, ADIA and Future Fund,28
according to Global SWF’s 2021 annual report.29 According to Preqin Pro data,
direct lending remains the most popular strategy, accounting for 46% of all private
debt fund commitments by SWFs (Fig. 1.14). As of March 2023, the median current
allocation to private debt is 2.5%, almost reaching the median target allocation of
2.6% (Fig. 1.6).

28
https://pro.preqin.com/investor/8586
29
https://globalswf.com/reports/2021annual#asset-class-of-the-year-5

Fig. 1.6: Median SWF current and target allocations to private debt, 2015 − March 2023

16%
Allocation (as a % of AUM)

14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2015 2016 2017 2018 2019 2020 2021 2022 Mar-23

Gap Current allocation Target allocation

Source: Preqin Pro. Data as of March 2023

Fig: 1.7: Median SWF current and target allocations to hedge funds, 2013 − March 2023

16%
Allocation (as a % of AUM)

11%

6%

1%

-4%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mar-23

Gap Current allocation Target allocation

Source: Preqin Pro. Data as of March 2023

 Sovereign Wealth Funds 2023 14

Mubadala Investment Company has been particularly active. Earlier this year, it
announced a series of joint ventures to pursue opportunities in private credit,
including a joint venture with Ares, starting with a $1bn initial target to invest in
credit secondaries, both LP- and GP-led;30 a joint venture with Alpha Dhabi Holding,
leveraging the strategic partnership with global asset manager Apollo Management
to co-invest in credit opportunities and collectively deploy up to $2.5bn over the
next five years;31 and a strategic partnership with KKR to deploy at least $1bn to
private credit opportunities in APAC in October 2022.32

Expanding into the Asia-Pacific region is a core pillar of our strategy

as this market presents unique credit investment opportunities,
driven by its rapid growth and high demand for non-bank capital.
We are very pleased to collaborate with KKR, an experienced
and high-caliber partner, and we look forward to leveraging their
deep experience and capabilities in Asia Pacific to pursue credit
opportunities and deliver value to our stakeholders.34
Omar Eraiqat, Co-Head of Credit Investments, Mubadala Investment Company

Real estate 33

The global real estate market is facing significant challenges in 2023 due to the
rise of interest rates and inflation, and concerns about some countries going
into recession. These factors have affected the demand and supply dynamics
of various real estate sectors, and SWFs need to adjust their real estate
allocations accordingly.

30
https://ir.aresmgmt.com/news/ares-management-and-mubadala-announce-the-creation-of-a-
joint-venture-to-invest-in-global/0e108b4f-dc38-498a-95ac-89362922493c/
31
https://www.apollo.com/media/press-releases/2023/01-05-2023
32
https://www.mubadala.com/en/news/mubadala-and-kkr-enter-strategic-partnership
33
https://www.mubadala.com/en/news/mubadala-and-kkr-enter-into-a-strategic-partnership-
to-invest-in-private-credit-in-asia-pacific

Fig. 1.8: Median SWF current and target allocations to real estate, 2013 − March 2023

16%
Allocation (as a % of AUM)

14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mar-23

Gap Current allocation Target allocation

Source: Preqin Pro. Data as of March 2023

 Sovereign Wealth Funds 2023 15

The large amounts of capital required by the real estate sector make it a natural
target for direct investments by SWFs. Of the global SWFs tracked by Preqin, 74%
make direct investments in real estate (Fig. 1.12). The current median allocation of
sovereign wealth funds to real estate has risen to a record 8.6%, up from 7.2% in
2022, and is now just 1.4% behind the target allocation of 10.0%, the narrowest gap
since 2013 (Fig. 1.8).
GIC is one of the most active SWFs that invests directly in real estate deals,
targeting assets in Japan, Australia, the US, and Europe. It has a strong appetite for
logistics assets. In April 2023, it acquired six logistics facilities in Japan, spanning
four million square feet, from asset manager Blackstone for more than $800mn.34
It also acquired the $2.9bn Milestone Logistics portfolio in Australia in April 2021,
which was done in partnership with Hong Kong-listed asset manager ESR.35
GPFG has also announced its intentions to increase its allocation to real estate.
It currently has a 2.7% allocation to unlisted real estate, invested through its
subsidiaries.36 In its Strategy 25 document, it announced an allocation range of
3% to 7%, combining both listed and unlisted investments.37 According to GPFG’s
annual report, its unlisted investments achieved a 0.1% return in 2022, with assets
in Japan delivering the strongest performance.38
For Middle East SWFs, US real estate is the preferred market owing to
stability, security, and growth. For example, ADIA has raised its North America real
estate weighting to between 45% and 60%.39
The value-added strategy has been the most popular for fund vintages from
2013 to 2022, with over a third of SWFs with real estate exposure committing to
it (Fig. 1.16), followed by opportunistic (31%). This aligns with broader trends across
the global real estate industry this year. In the first quarter of 2023, 25 value-added
unlisted real estate funds closed, raising $6bn, making it the most popular strategy.
The enthusiasm for the strategy is backed by its above-average performance. It

34
https://www.gic.com.sg/newsroom/all/gic-acquires-six-logistics-facilities-from-blackstone-
for-more-than-us800-million/
35
https://pro.preqin.com/deal/R89115
36
https://www.nbim.no/en/the-fund/Market-Value/
37
https://www.nbim.no/contentassets/71d5f5ade5fb4717acdedb412f30fdac/gpfg-strategy-25.pdf
38
https://www.nbim.no/contentassets/99de366397a847db99ab7a156e15aaa0/gpfg_annual-
report-2022.pdf
39
https://www.bloomberg.com/news/articles/2022-10-27/abu-dhabi-s-biggest-wealth-fund-is-
pushing-deeper-into-the-us-and-real-estate#xj4y7vzkg

Fig. 1.9: Median SWF current and target allocations to infrastructure, 2013 − March 2023

16%
Allocation (as a % of AUM)

11%

6%

1%

-4%

-9%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mar-23
Gap Current allocation Target allocation

Source: Preqin Pro

Sovereign Wealth Funds 2023 16

has consistently delivered the best or second-best returns among all real estate
strategies since 2015, between 11.9% and 20.0%, according to Real Estate Q1 2023:
Preqin Quarterly Update.40
Different SWFs have different approaches to real estate, with larger funds
having more diversified portfolios than smaller ones. Typically, SWFs that have
more AUM allocate more to real estate. Most APAC and European SWFs invest in
real estate, while smaller funds, such as those based in Africa and South America,
are less likely to.

Infrastructure
The stable yields offered by infrastructure investments are attractive to SWFs. The
current median allocation to infrastructure by SWFs is 4.9%, close to the target
allocation of 6.0% (Fig. 1.9). Preqin data reveals that 77% of SWFs pursue direct
deals in infrastructure, while 58% commit to unlisted funds (Fig. 1.12).
The largest direct infrastructure investments by SWFs have traditionally been
in the transport and energy sectors, but funds have stepped up investments in
renewable energy assets in line with sustainability goals and net-zero carbon
targets in recent years. GPFG has been making direct investments in renewable
energy projects since 2020, and plans to commit $10bn directly to assets. The fund
bought a 49% stake in a portfolio of Spanish solar plants and wind farms. majority-
owned by Iberdrola, for $650mn.41 In April 2021, GPFG invested €1.4bn in Ørsted's
Borssele 1 & 2 development off the Netherlands coast, which is the second largest
operating offshore wind farm in the world and has enough capacity to power one
million homes.42
Elsewhere, ADIA has significant minority stakes in North America-based solar
portfolio Arevon Energy and energy infrastructure company Sempra Infrastructure;
APAC developer and operator Equis Development, which has over 200 renewable
energy and waste infrastructure projects; and India’s ReNew Power, which is
listed on Nasdaq.43
In terms of infrastructure fund commitments, core-plus is the most popular
strategy, undertaken by 31% of SWFs investing in infrastructure, followed by core
(30%) (Fig. 1.17). Core and core-plus infrastructure companies usually provide
essential services, such as power generation, water supply, and digital connectivity.
This means that they provide stable, regulated, and often contracted recurring
cash flows that are seen as protection from global macroeconomic headwinds,
such as rising inflation and supply chain challenges.

INA has a strong focus on direct investment in real assets across a

diverse range of sectors, including healthcare, infrastructure, logistics
& supply chain, digital, and energy transition. These sectors not only
promise exponential growth and optimal risk-adjusted returns but
also align with the broader government goals of Indonesia.
Stefanus Ade Hadiwidjaja, Chief Investment Officer, Indonesia Investment Authority

40
https://www.preqin.com/insights/research/quarterly-updates/q1-2023-real-estate
41
https://www.reuters.com/markets/deals/norways-sovereign-wealth-fund-buys-49-stake-
spanish-renewables-portfolio-2023-01-17/
42
https://orsted.com/en/media/newsroom/news/2021/04/539821393331125
43
https://www.adia.ae/media/azure/adia/media/2023/01/sustainble-investing-at-adia_
october-2022_1.pdf
 Sovereign Wealth Funds 2023 17

SWFs can also co-invest with institutional investors to attract foreign funding for
infrastructure projects in their own countries. The Indonesia Investment Authority
has been raising money from international investors, including other SWFs, to co-
invest in infrastructure, digital, and other opportunities in Indonesia.44 The country’s
economy boomed last year thanks to its large reserves of nickel and cobalt, which
are essential for making the batteries that power electric vehicles.
Some SWFs align their agenda of decarbonization with their investment
strategy for infrastructure. The New Zealand Superannuation Fund (NZ Super Fund)
adopted a Climate Change Investment Strategy in 2016, which mandates low-
carbon investment targets to help it mitigate significant investment risks. Since
then, it has reduced the number of oil and gas assets in its portfolio by 40%.45

Our target allocations to alternative assets have increased materially

over the past five years, particularly in real estate, infrastructure,
growth equity, and venture capital. We have been increasing our
actual exposure via external managers, co-investments, and direct
investments. As things stand today alternative assets constitute an
important portion of our overall active risk allocation.
Doug Bell, Senior Investment Strategist, NZ Super Fund

NBIM also announced that it will divest its stakes in upstream oil and gas
companies. NZ Super Fund and NBIM are part of the One Planet Sovereign Wealth
Fund Initiative consortium set up in 2017 with PIF, QIA, ADIA, and the Kuwait

44
https://www.ft.com/content/5e170ec5-0d25-4a12-8407-f39480e563d7?desktop=true&segment
Id=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content
45
https://www.abhafoundation.org/media-uploads/reports/Energy_Report_Issue_63_11_2021_
November_Print.pdf

Fig. 1.10: Median SWF current and target allocations to natural resources, 2015 − March 2023

8%
Allocation (as a % of AUM)

6%

4%

2%

0%

-2%

-4%
2015 2016 2017 2018 2019 2020 2021 2022 Mar-23

Gap Current allocation Target allocation

Source: Preqin Pro

 Sovereign Wealth Funds 2023 18

Investment Authority (KIA).46 Other SWFs, such as Morocco’s Ithmar Capital and
GIC, have established agreements and partnerships with infrastructure funds to
co-invest in low-carbon assets.

Natural resources
SWFs have consistently overallocated to natural resources over the years. Except
for 2021 and 2022, the median current allocation figures to natural resources have
consistently been over median target allocations. The median current allocation
as of March 2023 is 4.6%, over the median target allocation of 4.5% (Fig. 1.10). In
natural resources, 68% of SWFs take on direct investments, 55% invest through
unlisted funds, and 18% invest through listed funds (Fig. 1.12).

https://www.abhafoundation.org/media-uploads/reports/Energy_Report_Issue_63_11_2021_
46

November_Print.pdf

Fig 1.11: Regional preferences of SWFs investing in real estate

100%
Proportion of SWFs investing

80%

60%

40%

20%

0%
Europe North America Asia Global Emerging Middle East Africa
markets

Source: Preqin Pro. Data as of March 2023

Fig. 1.12: SWF routes to market across real assets

100%

80%
Proportion of SWFs

60%

40%

20%

0%
Unlisted funds Listed funds Direct

Real estate Infrastructure Natural resources

Source: Preqin Pro. Data as of March 2023

Sovereign Wealth Funds 2023 19

As governments focus on the energy transition, SWFs have tended to invest in

renewable energy through the asset class in recent years. For instance, GIC’s latest
exposure to natural resources is an investment in Haddington ESP I,47 a private
equity fund managed by Haddington Ventures that focuses on investing in clean
energy storage assets, primarily green hydrogen hubs in the US.
GIC invests in natural resources through its allocations to infrastructure and private
equity. It gains exposure through direct investment and private funds, and is open
to considering the agriculture/farmland, timberland, metals, mining, energy, and
water sectors across different regions. It targets an annualized absolute return of
between 12% and 13% for the asset class.
Separately, ADIA’s natural resources fund portfolio currently consists of eight
known funds, six of which are focused on renewable energy assets, such as the
$1bn Energy Impact Fund II48 by New York-headquartered Energy Impact Partners,
and the $1.2bn Capital Dynamic Clean Energy and Infrastructure Fund V JV that
is managed by US renewable energy company Arevon.49 ADIA gains exposure to
natural resources through its allocation to infrastructure, via all routes to market.

The bottom line

Ultimately, alternatives will have a place in the portfolios of SWFs if they provide
diversification benefits and good risk-adjusted returns. With their abundant
financial resources and increasingly sophisticated investment teams, SWFs have
the kind of capital that can give them access to top-performing funds.
According to Preqin data, the average internal rate of return (IRR) for private
equity investments by SWFs have lagged the overall global private equity industry
slightly, by an average of 1.1% for funds of vintages 2011 to 2019. However, the
venture capital median net IRR has outperformed the global industry by an
average of 0.2% for the same fund vintages. For real estate, SWFs managed to
achieve average outperformance above the wider asset class by 0.6% during
the same period.
Alternatives are useful within the portfolios of SWFs to pursue public policy
goals, while delivering returns and providing diversification from pro-cyclical
spending and public market volatility.

47
https://pro.preqin.com/funds/148468/overview
48
https://pro.preqin.com/funds/104110
49
https://pro.preqin.com/funds/93225
Sovereign Wealth Funds 2023 20

Fig. 1.13: SWF private equity and venture capital fund Fig. 1.14: SWF private debt fund commitments by
commitments by fund type, vintages 2013 − 2022 fund type, vintages 2013 − 2022

2% 4% 1%
Buyout
3% Growth Direct lending
7%
Funds of funds Distressed debt
9% 28% Mezzanine
Expansion/Late stage
45% 46% Special situations
8% Venture capital (general)
3% Early stage Venture debt

2% Early stage: start-up 10% Private debt

20% 13% funds of funds
Early stage: seed
Other

Source: Preqin Pro. Data as of March 2023 Source: Preqin Pro. Data as of March 2023

Fig. 1.15: SWF hedge fund commitments by Fig. 1.16: SWF real estate commitments by strategy,
top-level strategy vintages 2013 − 2022

0.4%
Equity strategies 0.4%
Macro strategies Debt
3% 6% 15% 12%
14% Event driven strategies Core
Credit strategies 31% 11% Core-plus
17% Relative value strategies Value added
15% 11% Opportunistic
Multi-strategy
Niche strategies Co-Investment
7% 15%
10% Funds of hedge funds 34% Secondaries

Managed futures/CTAs

Source: Preqin Pro. Data as of March 2023 Source: Preqin Pro. Data as of March 2023

Fig. 1.17: SWF infrastructure commitments by Fig. 1.18: SWF natural resources commitments by
strategy, vintages 2013 − 2022 strategy, vintages 2013 − 2022

2%

8% 7% Debt
23%
Core
25% 30% Core-plus Natural resources
Value added Timberland
Opportunistic
Funds of funds 78%
31%

Source: Preqin Pro. Data as of March 2023 Source: Preqin Pro. Data as of March 2023
Sovereign Wealth Funds 2023
ESG gains
traction with
more SWFs
In particular, the swift
implementation of
ESG policies by SWFs
in China and Singapore
means SWFs in Asia
are surpassing other
major regions in terms
of ESG AUM
21
Sovereign wealth funds (SWFs) are becoming more conscious of environmental,
social, and governance (ESG) factors when making investment decisions. The
China Investment Corporation (CIC) and Government of Singapore Investment
Corporation (GIC) have driven this trend, particularly in Asia. The latest Preqin
data shows that Asian SWFs with an ESG policy have $3.3tn of total assets under
management (AUM), far ahead of Europe’s $1.3tn, the Middle East’s $1.0tn, and
North America’s $68.5bn (Fig. 2.2).
The inclusion of CIC's $1.4tn AUM is the main reason for the significant jump
(126%) in SWF assets managed with an ESG policy in Asia from December 2020 to
March 2023. CIC adopted a formal ESG policy in 2021, a year after China announced
a net-zero goal. GIC has experienced the second-largest regional growth in AUM,
growing by 76% from $453bn in 2020 to $799bn in 2023. The rise in ESG AUM
in Asia showcases the growing importance of ESG principles in some of the
world's largest funds.
Although the aggregate figures are influenced by CIC and GIC, the percentage
of SWFs with an ESG policy in each region paints a slightly different picture. Asia
and Europe stand at 47% and 46%, respectively, while the Middle East is at 18%
and North America at 13% (Fig. 2.1).
However, when looking through the lens of private capital funds, the depth
of ESG adoption across different regions reveals stark differences and areas of
opportunity. Private capital funds in Europe and North America have made strides
in integrating ESG into their investment strategies, with 91% and 75% of private
capital AUM, respectively, in funds that have an investment policy that includes
ESG issues. On the flipside, Asian and Middle Eastern private funds lag well behind,
with only 30% and 27% of private capital AUM subject to an investment policy that
includes ESG issues, respectively. With their substantial size and influence, SWFs
in China, Singapore, Saudi Arabia, and the UAE can help promote ESG adoption
among private capital funds in Asia and the Middle East.
Asia's SWFs lead ESG investing growth
CIC has made remarkable progress in ESG adoption since the publication of the
Preqin Sovereign Wealth Funds in Motion report in 2021.1 In September 2020, China
announced its goal to reach net-zero carbon emissions by 2060.2 In response,
CIC established its inaugural ESG policy framework in 2021, integrating ESG into
1
https://www.preqin.com/insights/research/reports/sovereign-wealth-funds-in-motion
2
https://www.iea.org/reports/an-energy-sector-roadmap-to-carbon-neutrality-in-china
Sovereign Wealth Funds 2023 22

Fig. 2.1: Number of SWFs with an ESG policy by region

4
0
2
1
Canada 17 9
3 3
11 Nordic
2 7 4
1 0
4 1
0 0 4
UK 1 1
Other 1
North America Central &
Eastern Other
US Europe Greater South Korea Asia
Western China (Excl. 1
Europe 17 Hong Kong) 1
(Excl. UK) 2 Middle East 0
0 Hong Kong
10
India 2
0
2
5
2
Singapore

Latin America
& Caribbean
Africa Australasia

No. of SWFs with an ESG policy

Total no. of SWFs

Fig. 2.2: AUM of SWFs with an ESG policy by region

South Korea
$205.0bn
Nordic
$1,190.0bn

Western Europe
US (Excl. UK)
$68.5bn $74.1bn
Hong Kong
$515.8bn
Africa
$4.0bn Singapore
$1,096.0bn

Australasia
$168.4bn
Middle East
$1,014.0bn

Source: Preqin Pro. Data as of March 2023

Sovereign Wealth Funds 2023 23

its investment processes. According to its 2021 annual review,3 CIC adopted a
Sustainable Investment Policy, developed an integrated ESG and climate transition
portfolio, and actively pursued investments in eco-friendly technologies and
energy transition.
Last year, CIC completed its Guidelines on Attaining Carbon Peak and
Carbon Neutrality Goals and Practicing Sustainable Investing, covering operations,
research, asset allocation and investment, risk management, and international
co-operation.4 Publishing the guidelines, CIC said: ‘Heeding global market trends
and based on CIC’s own realities and the experience of its international partners,
the Guidelines has outlined CIC’s roadmap to carbon neutrality in its operations
and CIC’s strategic plans for effectively advancing sustainable investing at the total
portfolio level in the next five years and far beyond.’
Meanwhile, Singapore funds GIC and Temasek Holdings jointly manage an
impressive $1.1tn in AUM. Their combined ESG AUM represents approximately 26%
of Asia's total AUM, coming in close to China's 32%. This achievement is particularly
noteworthy considering Singapore's small geographic size. GIC and Temasek's ESG
practices can serve as a role model for SWFs and private capital funds.
Temasek has gained recognition as the top state-owned investment fund
with exemplary governance, sustainability, and resilience practices, according to
Global SWF's 2022 GSR Scoreboard.5 Last summer, the fund launched GenZero,6 an
investment platform company, with an initial capital injection of $3.75bn (SGD 5bn)
to deploy in decarbonization technologies. 7

We are making good progress with our decarbonisation initiatives

to help safeguard the future of humanity and contribute to a bright
future for current and future generations. We need to act now and
together to solve the climate challenge, reverse nature loss and help
create a more inclusive society.7
Dr Steve Howard, Chief Sustainability Officer, Temasek

GIC established a dedicated sustainability office in the summer of 2022, tapping

into its Sustainable Investment Fund launched in 2020. These efforts aim to drive
investments toward climate-related opportunities such as renewable energy,
sustainable infrastructure, and green bonds, thereby supporting the transition
to a low-carbon economy. GIC actively engages with its portfolio companies
to help with their climate transition plans and funding of green technology.8 It
acknowledges the need for short-term trade-offs for long-term gains during the
transition process.
At the COP26 UN climate change meeting in 2021, several countries joined
the pledge to be carbon-neutral by 2050. Countries including South Korea, Taiwan,
Malaysia, and Vietnam announced their commitments to achieve net-zero carbon
emissions by 2050.

3
http://www.china-inv.cn/chinainven/xhtml/Media/2021EN.pdf
4
http://www.china-inv.cn/chinainven/Media/2022-05/1002032.shtml
5
https://globalswf.com/reports/2022gsr
6
https://www.temasek.com.sg/en/news-and-resources/news-room/news/2022/temasek-
launches-genzero-aimed-at-accelerating-decarbonisation-globally
7
https://www.temasekreview.com.sg/downloads/Temasek-Review-2022-Media-Release.pdf
8
https://www.gic.com.sg/how-we-invest/investing-sustainably/
Sovereign Wealth Funds 2023 24

Although commendable, these goals alone are unlikely to enable these Asian
countries to achieve net-zero emissions by 2050. Many countries in the region
face structural obstacles, and achieving the transition will require substantial
investment. But Asian SWFs are more willing to invest into these green initiatives
and technologies than other regions, simply due to their sheer size in AUM, which
allows them to respond to the urgency to decarbonize and avoid bearing the brunt
of global warming.
Asia is particularly susceptible to climate risks compared to some other
regions, with a significant majority of people living in areas exposed to deadly
heat waves. In the region, there will be 600 million to 1 billion individuals residing
in vulnerable locations by 2050, whereas the global number ranges between 700
million and 1.2 billion, according to McKinsey Global Institute.9
McKinsey says that the potential loss of outdoor working hours due to
increased heat and humidity could put Asia's annual GDP at risk by an estimated
$2.8tn to $4.7tn by 2050. It says that the potential hit to Asia’s GDP accounts for
two-thirds of the total global GDP currently at risk from climate change.

Over the next 10 years, the best investment opportunities will be in

climate change and related technologies.10
Heenam Choi, Chief Executive Officer, Korea Investment Corporation

While SWFs exert global influence, they are less prominent in the US and Europe.
As of March 2023, the US accounted for a mere 2% of the global SWF AUM,
while Europe represented 18%, largely driven by Norway's colossal $1.24tn SWF,
Government Pension Fund Global (GPFG). In contrast, Asia held 41% of the total
global AUM, with the Middle East close behind at 36%. This stark contrast highlights
the substantial financial clout wielded by SWFs in Asia and the Middle East, which
enables them to shape the ESG agendas within their respective regions. 10

Global SWFs and their ESG adoption

The percentage of SWFs with an ESG policy has been growing, from 21% in Preqin's
2021 SWF report to 24% today among the 95 SWFs tracked. SWFs with an ESG
policy represent 59% of SWF AUM, up from 54% in 2021.
SWFs in North America have been slower to adopt ESG policies compared
to their counterparts in other regions, partly due to the more complex political
environment in the US. The country's federal and state governments make it more
challenging to establish a unified approach to SWFs at the national level.
Support for ESG policies in the US currently faces political headwinds, with
numerous Republican politicians at both the state and national level actively
opposing ESG initiatives. In March 2023, an alliance of 19 states led by Florida
Governor Ron DeSantis11 criticized President Joe Biden's ESG agenda, citing it as
part of a 'woke ideology' that 'shrinks fiduciary responsibility'.12 However, attempts
to ban ESG policies may be difficult to implement in practice. For example, while a
bill in Indiana designed to prevent the state’s pension fund from working with asset

9
https://www.mckinsey.com/capabilities/sustainability/our-insights/climate-risk-and-response-
in-asia
10
https://www.kearney.com/industry/private-equity/article/-/insights/sovereign-wealth-funds-
and-esg-a-marriage-made-in-heaven
https://www.flgov.com/2023/03/16/governor-ron-desantis-leads-alliance-of-18-states-to-fight-
11

against-bidens-esg-financial-fraud/
12
https://oklahoma.gov/content/dam/ok/en/governor/documents/Joint%20Governors%20
Policy%20Statement%20on%20ESG%20-%203.16.2023.pdf
Sovereign Wealth Funds 2023 25

managers that take ESG factors into account was passed in April, its provisions
were diluted. This included an exemption for private market investments, which
make up 15% of the fund’s AUM.13
In Europe, 90% of the region's ESG AUM is dominated by GPFG, a pioneer in
responsible and sustainable investing. The fund has been actively driving all of its
portfolio companies toward achieving net-zero emissions by 2050 , a move that it
says is about financial sustainability as well as environmental sustainability. 14

Our long-term return will depend on how the companies in our

portfolio manage the transition to a zero-emissions society.14
Nicolai Tangen, CEO, Norges Bank Investment Management

Middle East SWFs have long been seen as slow ESG adopters compared to
other major regions. However, there are signs that circumstances are shifting,
as petroleum-rich nations urgently seek to diversify their economies away
from hydrocarbon wealth in the face of the eventual depletion of oil and gas
reserves, and a potential drop in demand driven by the increasing penetration of
renewable energy.
The UAE and Oman have committed to achieving net-zero emissions by 2050,
while Saudi Arabia, Kuwait, Qatar, and Bahrain have set the same target for 2060. In
a show of commitment, Dubai will host COP 28 in November this year, the second
COP conference in the Middle East. With the AUM of Middle East SWFs focused on
ESG accounting for only a quarter (27%) of the $3.7tn total, the runway potential for
the region to mobilize capital for ESG is significant.
Earlier this year, Saudi Arabia announced its commitment to invest
approximately SAR 1tn ($266.4bn) in generating ‘cleaner energy’.15 This follows the
Public Investment Fund’s Green Finance Framework, which was developed in
2022 with the objective of raising green debt to fund environmental initiatives.16
Last year, the UAE introduced its Sustainable Finance Framework 2021−203117 to
promote private sector engagement in sustainable finance initiatives, and green
investment projects.

The growing significance of social

For the majority of the past two decades, the environmental aspect of ESG has
been the highest priority aspect for SWFs. Tackling climate change has become a
key focus, with funds pursuing investment opportunities supporting the transition
to a low-carbon economy. However, ESG priorities for SWFs have recently evolved
to reflect a greater emphasis on social issues, such as human rights, and diversity
and inclusion, in addition to the urgency to tackle climate change.
The latest example is GPFG, which divested from South Korea's state-run
Korea Gas Corp and Indian gas firm GAIL due to the ‘unacceptable risk that [the]
companies contribute to serious violations of individuals' rights in situations of war

https://www.insideindianabusiness.com/articles/indiana-senate-committee-advances-pared-
13

down-anti-esg-bill
14
https://www.weforum.org/agenda/2022/09/norways-massive-sovereign-wealth-fund-sets-net-
zero-goal/
15
https://www.reuters.com/world/middle-east/saudi-arabia-invest-about-266-bln-clean-energy-
minister-2023-01-30/
16
https://www.reuters.com/markets/funds/saudi-arabias-sovereign-fund-lays-out-plan-green-
financing-2022-02-28/
17
https://www.moccae.gov.ae/assets/24b84d14/UAE_Sustainable_framework_21.pdf.aspx
Sovereign Wealth Funds 2023 26

or conflict’, Norges Bank Investment Management, which manages the fund, said
in a statement.18 ‘The background is the companies' business collaboration with an
organization affiliated with the military in Myanmar,’ it added.
GPFG has been championing the active divestment of stakes in companies
that exhibit ESG risks over the past decade. More recently, it has ratcheted up the
heat on those at risk of human rights abuse. Norway is recognized as one of the
early adopters of a comprehensive policy on corporate social responsibility (CSR)
in the global economy. As part of this policy, its investments are anchored on an
ethical foundation.
However, implementing the social pillar poses a challenge for most SWFs.
Many social initiatives are intertwined with environmental efforts, making them
difficult to define and quantify. According to the Preqin Investor Survey in June
2022, investors view the absence of value and the difficulty to integrate ESG
data into quantitative models as the main reasons why ESG issues are of little
significance to investment decisions. 19

In 2023, ESG integration is not just a box-ticking exercise. Thinking

long term is not about marketing or excluding well-run companies
that are working on transition plans. We know that society demands
its institutions act responsibly and sustainably – for the long term.
We take the same approach to the companies we invest in.19
Dr Raphael Arndt, Chief Executive Officer, Future Fund

Nevertheless, for many SWFs, incorporating the social pillar has become
increasingly essential to fulfil their mandates of addressing domestic priorities
and social needs. With SWFs increasingly relying on co-investments, their partners
and stakeholders are demanding greater transparency and disclosure of sound
practices in all three ESG pillars, including social.
As stakeholder capitalism gains traction and frameworks for defining
social issues, such as the 10 Principles of the UN Global Compact for Corporate
Sustainability,20 become clearer, SWFs are expected to focus more on the social
pillar to generate both financial and societal value in the long term.

18
https://www.nbim.no/en/the-fund/news-list/2023/decisions-on-exclusion2/
19
https://www.futurefund.gov.au/news-room/20230427---Keynote-by-Dr-Raphael-Arndt---
Alpha-Live-Conference?page=0&itemsPerPage=15
20
https://unglobalcompact.org/what-is-gc/mission/principles
Preqin
ESG Solutions
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for the alternatives market

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ESG datasets and tools to seamlessly
integrate ESG into your investment
decisions. Gain visibility into ESG risks,
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Sponsored by:
Accelerating data collection in a turbulent
and ESG-conscious market
Trends in the sovereign wealth fund industry introduce new challenges,
calling on data collection to guide the way
What facilities of data collection do you believe will
become prevalent in a more stringent market?
While navigating the extreme volatility in the current
market, data collection facilities will be geared toward
traversing three key mega trends. The first is the emerging
convergent industry model. The financial, administrative,
and advisory sectors are morphing together to create a
new business model that will require a more integration-
based approach to data collection. Secondly, sovereign
wealth funds (SWFs) are looking to shift more into private
equity investment. This transition will demand greater
due diligence around compliance and guidelines. Finally,
ESG conditions are becoming an important facet of SWF
investing. As such, many firms have set out to eliminate
their carbon emissions by 2050. All these trends require an
evolved level of data analysis that will set the course for
data collection in the future.
How can clients utilize and incorporate data to navigate
market turbulence, particularly vehicles with lower-risk
tolerance like SWFs?
Future data collection will need to introduce a new tool
kit, ensuring data is not only collected, but organized in a
way that can be assessed efficiently and offers investment
insights. New technologies will play a big part, helping
to deliver a deeper form of data retention. The industry
demands data-driven models that incorporate traditional
and non-traditional research sources. For example, social
media can now serve as an insightful resource. Moreover,
the industry must look for ways to blend machine learning,
such as AI, and human efforts. These practices work best
when automation is performed with AI to optimize data
gathering, and then humans weigh in on analysis.
Angela Summonte is the Global Head of Asset Owners at Alter Domus, bringing more than twenty years of experience
leading sales activities in the banking industry. With more than 4,500 employees across 39 offices and over $2tn in global
AuA, Alter Domus is a leading provider of integrated solutions for the alternative investment industry and is dedicated to
serving private equity, real assets, and debt capital markets.
28
Angela Summonte
Global Head of Asset Owners
Alter Domus
Can sustainability extend to data collection? If so,
how do these changes vary for funds with more
robust regulations?
Sustainability initiatives are challenging for more regulated
clients, such as SWFs. Currently, information linking ESG
resources and financial performance lacks consistency and
transparency. We see many initiatives around regulations
to establish more transparency and even create a potential
benchmark. One initiative is ESG data convergence, which
would demand both GPs and LPs agree to report and
collect the same ESG metrics, from board diversity to
carbon emissions. Ultimately, it is a matter of defining the
data points that can be collected and monitored in the
same way, then normalizing them. It isn’t easy, but there is a
lot of attention around the topic.
What impact do you envision this form of sustainability
practice having on the private sector as a whole, or the
data collection industry specifically?
Data collection around ESG will influence other sectors
by providing comparable information to the private sector
and establishing a coherent marketing approach. These
sustainability practices will also need to be specific
to the client. The same data points won’t be relevant
across all strategies in the private sector. It will be about
identifying which data points are relevant to the specific
underlying assets.
Sovereign Wealth Funds 2023 29

Middle East
SWFs maintain
resilient growth
amid economic
uncertainty
Middle East SWF AUM Despite oil prices slumping in 2023 from their March 2022 peak1 – weighed
down by a slowdown in global economic growth and concerns of a recession –
grew to an all-time high assets under management (AUM) of Middle East-based sovereign wealth funds
of over $3.7tn so far this (SWFs) continue to grow, hitting an all-time high of over $3.7tn as of March 2023
(Fig. 3.1). Middle East-based SWFs hold the second highest AUM of all regions
year, showcasing robust globally, accounting for 36% of the global total and just below the 41% held by
strength Asia-based SWFs.
The Middle East is home to some of the world’s largest SWFs, including the
Abu Dhabi Investment Authority (ADIA), which has AUM of $829bn; the Kuwait
Investment Authority (KIA), with $750bn in AUM; Saudi Arabia's Public Investment
Fund (PIF), with $620bn, and the Qatar Investment Authority (QIA), with $445bn.
Collectively, these four SWFs account for 71% of the region's total AUM and just
over a quarter of the global total.
In its April 2023 report, the International Energy Agency (IEA) said that a
potentially substantial supply deficit is set to emerge in the second half of 2023,2
pushing oil prices higher for the rest of the year. This could translate to continued
budget surpluses for those economies in the Cooperation Council for the Arab
States of the Gulf (GCC); with lower fiscal expenditure. In 2022 the GCC posted its
first budget surplus since oil prices crashed in 2014. Oxford Economics forecast
the budget surplus to continue this year, although economic growth will slow due
to softening oil prices.3

1
https://capital.com/oil-price-forecast
2
https://www.iea.org/reports/oil-market-report-april-2023
3
https://www.preqin.com/insights/research/reports/fundraising-from-the-middle-east-a-guide-
to-raising-capital
 Sovereign Wealth Funds 2023 30

As the amount of fresh capital managed by Middle East-based SWFs far exceeds
the needs and capacity of domestic capital markets, their appetite for alternative
assets has risen. Preqin analysis of Middle East-based SWF data shows that the
average allocations to alternatives doubled year over year to 2022, rising from
22% of total assets in 2021 to 44% (Fig. 3.2). Some of this is driven by the very high
allocation levels of some smaller SWFs in the region. Even so, this trend reflects
Middle Eastern SWFs' ongoing pursuit of non-traditional assets to boost returns,
with percentage allocations also likely boosted by falls in the valuations of public
equities and bonds in 2022. The increase shows the flexibility that Middle Eastern
SWFs have when making investment decisions, as they often have fewer short-
and medium-term liabilities than other types of institutional investors.
The increased allocation to alternatives comes at the expense of decreasing
allocation to equities, bonds, and cash, with equities declining most, at 14%.
According to Global SWF analysis based on official filings on exchanges, several of
the top 10 largest SWFs, including ADIA, KIA, and PIF, have reduced their portfolio
allocations to US equities as of September 2022. This is perhaps unsurprising given
the bearish sentiment toward equities last year, with the S&P 500 posting its worst
annual performance since the Global Financial Crisis (GFC).4
In the report on state-owned investment vehicles, Global SWF stated: ‘If
financial markets continue to fall in 2023, it is likely that sovereign funds will
keep ‘chasing elephants’ as an effective way of meeting their capital allocation
requirements, especially those from the Gulf that will have received large injections
from oil revenues.’ The elephants to which the report refers are the record billion-
dollar megadeals sealed by SWFs in 2022, a year in which half of the top 10
largest-ever deals took place5.

Alternative asset class allocations

Aligning with the growing trend of increasing private equity exposure, ADIA, the
largest SWF in the region, raised its private equity allocations to 7−12% in 2021. Its
private equity desk has been remarkably active, with 40 direct deals completed
in 2021, a substantial increase from 25 deals in 2020 and 18 in 2019, according to
ADIA's 2021 annual review.6

4
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-
500-logs-its-worst-annual-performance-since-2008-73687583
5
https://globalswf.com/reports/2023annual#the-world-in-2023-3
6
https://www.adia.ae/En/pr/2021/index.html

Fig. 3.1: Middle East SWFs' AUM, 2013 − March 2023

4.0
Assets under management ($tn)

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Mar-23

Source: Preqin Pro. Data as of March 2023

Sovereign Wealth Funds 2023 31

ADIA's financial prowess has enabled it to secure some of the largest deals in
2022. Notably, it co-invested with GIC and a consortium in two US companies: the
$10.2bn take-private deal of Zendesk7 and the $9.5bn buyout of Emerson Electric
Co.'s Climate Technologies unit8.
PIF's latest buyout co-investment includes participating in a private equity
consortium led by KKR and Global Infrastructure Partners to acquire a stake in
Vodafone Group Plc's Vantage Towers,9 one of the largest tower businesses in
Europe. This deal not only provides Saudi Arabia with access to a critical European
telecommunications network, but also demonstrates the willingness of Middle
East SWFs to co-invest with large private equity groups.

The rise of strategic development in sovereign wealth funds

SWFs in the Middle East are increasingly prioritizing portfolio diversification
as a means of achieving economic stability. This has led to the emergence of
strategic development SWFs (SDSWFs), which focus on investments to bolster
the economy. SDSWFs are a departure from traditional SWFs in that instead of
low-risk investments, such as real estate and bonds, they focus on sectors in
private equity, such as technology, education, and healthcare to drive sustainable
long-term growth.
Saudi Arabia and the UAE have led in fostering high-tech industries in the
region. For instance, Saudi Arabia's PIF is entrusted with developing NEOM, a
planned city that will attempt to combine advanced technology and sustainable
practices in a futuristic urban landscape. NEOM represents the ongoing trend of
progressive urbanization in the region, following the likes of Dubai.
For many Gulf countries, the shift toward alternative investments is also
driven by the desire to wield greater soft power on the global stage, including
through sports. In its 'Vision 2030',10 Saudi Arabia has indicated its aspiration
to become prominent in sports and a global hub for e-sports.11 PIF has made
substantial investments in e-sports, including establishing Savvy Gaming Group,
which subsequently acquired and merged with ESL Gaming GmbH12 and FACE IT

7
https://pro.preqin.com/asset/69330/deals/97202/profile
8
https://pro.preqin.com/asset/514567/deals/143996/profile
9
https://www.ft.com/content/5e68714e-b03c-4592-b993-5d47457f7351
10
https://www.vision2030.gov.sa/media/rc0b5oy1/saudi_vision203.pdf
11
https://www.spa.gov.sa/2384241
12
https://pro.preqin.com/asset/464560/deals

Fig. 3.2: Average proportion of Middle East-based SWFs' cumulative AUM by asset allocation, 2021 vs. 2022

Dec-21

Dec-22

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Alternatives Equities Fixed Income Cash Other

Source: Preqin Pro

Sovereign Wealth Funds 2023 32

Limited for $1.6bn in January 2022.13 These strategic moves led PIF to become the
largest equity holder in Chinese e-sports firm VSPO (then VSPN) through venture
funding the following year (February 2023).14 In physical sports, the SWF further
bolstered its influence by leading a consortium in an LP-direct private equity deal
for English Premier League club Newcastle United in November 2022.15
Qatar and the UAE have long recognized sports as a key pillar of their
strategic frameworks. This soft power-oriented approach was visible in the grand
spectacle of Qatar hosting the FIFA World Cup in 2022, while the UAE established
a soft power council16 and introduced a soft power strategy in 2017 to underscore
its importance.
SWFs in the Middle East are increasingly directing a greater portion of their
portfolios toward alternative investments to diversify income sources and foster
economic development. This trend is expected to persist as SWFs strive to
enhance their returns and make a meaningful impact on society.

13
https://esportsinsider.com/2022/01/esl-faceit-group-bought-saudi-1-5bn
https://www.preqin.com/insights/research/blogs/saudi-arabias-265mn-investment-in-vspn-
14

marks-apacs-largest-gaming-deal-since-2020
15
https://pro.preqin.com/asset/385342/deals/146186/profile
16
https://wam.ae/en/details/1395302634954
Sovereign Wealth Funds 2023 33

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