Sovereign wealth funds invest more at home as Covid-19 hits economies

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Sovereign wealth funds, which are among the world’s largest stock market players, are unleashing more of their firepower at home, as governments rely on them to restart pandemic-stricken economies.

The funds made about $ 12.7 billion in new investments directly into businesses and projects in their national economies in 2020, more than triple the amount in 2019, according to the International Sovereign Wealth Fund Forum, or IFSWF. So far this year, sovereign wealth funds have invested some $ 4 billion in their country, roughly the same level as in 2019.

“There is a general trend away from investing in international markets to demonstrate the value of sovereign wealth funds to citizens,” said Victoria Barbary, director of strategy for the forum. “Countries planning new sovereign wealth funds are increasingly focusing on investing in them. This is a trend that Covid has accelerated. “

Sovereign wealth funds manage trillions of dollars on behalf of nations, and where they direct their money can have a major impact on markets.

Their mandates vary. Some invest anywhere, while others can only invest internationally or nationally. Among funds allowed to invest anywhere, since the coronavirus pandemic hit, domestic investments have jumped to 44% of the total, from 22% in the three years to March 2020, according to research firm Global SWF.

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Funds in Kuwait, Malaysia, Singapore, Saudi Arabia and the United Arab Emirates are investing more domestically, Global SWF said.

Singapore’s Temasek Holdings invested $ 8.9 billion in Singapore Airlines Ltd.
during the pandemic. The Turkish sovereign wealth fund invested $ 5.8 billion in 2020, mainly in local banks and insurers and in the Turkcell mobile operator Iletisim Hizmetleri AS
, according to the IFSWF. The Irish Strategic Investment Fund has allocated € 2 billion, the equivalent of around $ 2.4 billion, to a so-called pandemic stabilization and recovery fund in 2020.

In June, CDP Equity SpA, the Italian sovereign wealth fund, led a group of investors that agreed to buy 88% of Italian road manager Autostrade per l’Italia SpA for around 8.1 billion euros.

Governments have also used sovereign wealth funds for spending purposes during the pandemic. Chile’s finance ministry withdrew $ 4.1 billion from its Economic and Social Stabilization Fund last year and plans to withdraw more than $ 6 billion this year, according to a spokesperson.

The Norwegian government’s pension fund, Global, which only invests outside the country, made its largest contribution to the government last year. The Norwegian Ministry of Finance withdrew $ 34 billion from the fund in 2020, almost 3% of its overall size. The Norwegian fund is one of the most transparent in the world and its investments returned 10.9% in 2020, with a value of $ 1.27 trillion at the end of the year. Its stocks returned 12.1% and its bonds 7.5%.

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Inward-looking does not necessarily mean that these funds are withdrawing from global markets. Foreign investment was higher in 2020 than the previous four years, at more than $ 50 billion, according to the IFSWF.

These domestic investors remain among the largest shareholders of S&P 500 companies. Saudi Arabia’s Public Investment Fund has taken significant stakes in Live Nation Entertainment Inc.
and the Carnival cruise line Corp.
, and invested in U.S. stocks through exchange-traded funds in 2020.

An important direct response to the health crisis by a sovereign wealth fund came from the Russian Direct Investment Fund, which rushed early last year to finance the development of the Sputnik V vaccine.

“We have become a virtual pharmaceutical company to fight Covid,” said Kirill Dmitriev, managing director of the fund. “This is something I want to tell my grandchildren.”

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RDIF has invested around $ 200 million to develop the Sputnik vaccine and has an exclusive license to sell it outside of Russia, where it is registered in 67 countries, Dmitriev said. RDIF said this week that the Serum Institute of India, the world’s largest vaccine maker by volume, plans to start producing the vaccine by September.

“The demand for sovereign wealth funds is not just about being a passive manager,” Mr. Dmitriev said.

Write to Simon Clark at [email protected]


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