Closing Chapter: Super Asset Owners
Chapter 10 provides a portrait of sovereign investors as super asset owners and their growing impact and influence in four key roles (see chart below).
First, ESG guardians. They lead in ESG and SDG in the digital economy, uniting to counter live-streamed shootings, relying on AI to monitor the conduct of portfolio companies, chiding the management of others, and rebalancing their portfolios to de-risk them for climate change and technological disruption.
Second, fintech powerhouses. They have, by necessity, evolved into fintech hotbeds, creating internal teams focused on the risks, opportunities, and operational implications of the digitalization of everything. AI and blockchain are deployed internally and seeded in startups, as they are poised to be the leaders, instead of the clients, of the asset management industry.
Third, Sustainability champions. Sovereign investors are putting long-term capital to cutting-edge technologies, fostering innovation hubs out of traditional centers like the US and Germany. Consequently, emerging economies are becoming smarter and more competitive. Even those who view the digital future as a zero-sum game have come to recognize the utility of these super asset owners.
Finally, digital diplomats. Sovereign investors are confronting an increasingly fractured tech world. The collaboration among the SIFs, however, provides a path whereby the US, China, EU, Japan, and many other parts of the world could reach a new equilibrium and collectively drive innovation. Viewed for what they truly are, these super asset owners of the future can become opportunities for mutual prosperity.
CHAPTER 1 Sovereign Investors Rising in Crisis
Passing through the understory of lounge chairs and low tables, you approach the bar with a view of televisions carrying the major international news channels. The suited barista serves up the coffee of your choice and you relax briefly as you scan your emails on the free wifi, glance at a few of the international papers and periodicals, and recover from the constant bustle just outside the lounge – business professionals from a multitude of lands clearing security and taking elevators from the towering atrium.
No, you are not in the first-class lounge at an international hub airport (although it might well be one from all appearances). You have arrived, instead, at the visitor lounge in the hometown high-rise offices of Abu Dhabi Investment Authority, one of the world's largest and lowest profile sovereign wealth funds. ADIA manages its vast $700 billion plus global portfolio from this edifice where it employs investment professionals from around the world in a gleaming glass tower that would not look out of place in any world city. And ADIA is but one of the growing number of large sovereign wealth funds that remain below the radar but have an increasing impact on global markets.
Their low profile is in contrast to the better known dealmakers in the centers of finance. But their checkbooks and influence on the world at large outweigh the erstwhile titans of finance.
And as the number and size of such operations continue to surge, their influence does as well. Large as they are, in crises they have an even larger role to play. As this book went to press, the world was facing a pandemic, an inflection point where two themes of this book converged in sharp relief: the power of these massive funds in times of crisis and the world's now urgent march to the digital economy.
Trillion-Dollar Club
The global economy has witnessed the emergence of a new set of key actors over the last two decades – the Sovereign Investors. In this group we include Sovereign Wealth Funds (SWFs) and the very large Public Pension Funds (PPFs), which are active in the global marketplace and have many of the characteristics of SWFs. The concept of SWFs also includes sovereign development funds (SDFs), government established investment vehicles with development objectives.
These Sovereign Investors have become pivotal players in global financial markets thanks to their enormous capital base, and they continue to increase in number, size, variety, and scope. This group of highly heterogeneous funds has different backgrounds, structures, and missions, but they share one ultimate goal: to preserve capital and maximize the return on investments. As such, in this book they are collectively referred to as the Sovereign Investment Funds (SIF).
How much money are we talking about? Tens of trillions of dollars sit in these funds. Table 1.1 shows the top ten sovereign wealth funds ranked by assets under management (AUM). The very top funds manage monies exceeding the GDP of good-sized European countries. If AUM were GDP, they would rank among the top 20 nations.
Table 1.1 Top Ten Sovereign Wealth Funds
Data Source: Sovereign Wealth Fund Institute, March 2020.
| Government Pension Fund of Norway, Europe, $1,108,170,000,000China Investment Corporation (CIC), Asia, $940,604,000,000Abu Dhabi Investment Authority (ADIA), Middle East, $696,660,000,000Kuwait Investment Authority (KIA), Middle East, $592,000,000,000Hong Kong Monetary Authority, Asia, $509,353,000,000GIC Private Limited, Asia, $440,000,000,000National Council for Social Security Fund, Asia, $437,900,000,000SAFE Investment Company, Asia, $417,844,700,460Temasek Holdings, Asia, $375,383,000,000Qatar Investment Authority (QIA), Middle East, $328,000,000,000 |
As is discussed in more detail below, these sovereign investors are derived from different sources and serve different ends. But a common factor is their growth in size and geographic spread. Commonly thought of as a Middle Eastern phenomenon, broadly viewed, the funds are based in much of the developed world and include very large funds from North America, East Asia, and Europe as well as the Gulf. Increased growth is expected to come from other regions, most notably, sub-Saharan Africa, where natural resources may be the source and domestic economic development the objective.
Currently, according to the Sovereign Wealth Fund Institute's (SWFI's) “Top 86 Largest Sovereign Wealth Fund Rankings by Total Assets,” the top ten largest sovereign wealth funds ranked by total assets are as shown in Table 1.1.
Public Pension Funds are important members of the SIF tribe. They are even larger, as the table below indicates; they are global and they are innovative, increasingly focused on tech innovation. GPIF (Japan), NPS (Korea), CPPIB (Canada), and CalPERS (US) are well known in the capital markets for their active investments (see Table 1.2). This combination of characteristics reinforces the perception of SIFs as savvy, silent heavyweights in the world's private and public markets.
Table 1.2 Top Ten Public Pension Funds
Data Source: Sovereign Wealth Fund Institute, March 2020.
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Social Security Trust Funds, North America $2,925,789,929,172Government Pension Investment Fund Japan (GPIF), Asia $1,490,240,000,000Military Retirement Fund,
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