LONDON • Famed for snapping up glitzy real estate and stakes in troubled international banks during the global financial crisis, sovereign wealth funds are investing more at home, a trend set to accelerate in the wake of the economic carnage wrought by Covid-19.
Some, such as Singapore's Temasek Holdings, may act more as development funds aimed at supporting their countries' economies, but many are considered "rainy day" funds - meaning they will have a big role in helping governments to manage the fallout from the pandemic.
There has been a flurry of domestic deals recently, like Turkey's fund injecting US$3.1 billion (S$4.3 billion) into three state banks and Temasek supporting a US$1.5 billion rights issue by Sembcorp Marine.
That is in addition to withdrawals from the Nigerian and Norwegian funds to help their governments deal with the economic impact of the virus.
While the lion's share of sovereign fund investments is still overseas, domestic deals are on the rise. They accounted for 21 per cent of private equity deals in 2019 - already a doubling from 2015 levels, according to the International Forum of Sovereign Wealth Funds (IFSWF).
"I'd expect greater levels of investment in domestic economies, going forward," said PwC global private equity, real assets and sovereign funds leader Will Jackson-Moore.
"That said, the best opportunities in international markets are going to be in the next 18 months. If there's demand for short-term emergency funding (from governments), then that could be more of a conflict and it will come down to how governments and sovereign wealth funds balance that."
Analysts say returns at home may not necessarily be poorer, particularly if funds can cherry-pick deals. Also, many are located in emerging markets, where expected gains can be larger. The rub comes if their remit also includes aiding the development of local economies, in which case some of the payback can flow to the economy as well as the fund.
Qatar made its name more than a decade ago in the aftermath of the global financial crisis when its sovereign fund vehicles snapped up stakes in Credit Suisse, Barclays and Volkswagen at a time when illiquidity meant many asset prices were low.
This year, Saudi Arabia's Public Investment Fund (PIF), which manages over US$300 billion in assets, is making similar waves, last month disclosing stakes in Boeing, Citigroup, Facebook, Walt Disney and Marriott.
Still, the PIF is redoubling its domestic focus, said a source familiar with the fund. Its aim is to ensure its portfolio of local assets under management sits at 75 per cent by the end of 2020.
2 of 10
Number of sovereign funds, oil and non-oil, that said their government had sought funds in an International Forum of Sovereign Wealth Funds survey.
It is a not-dissimilar story for other funds.
"Many sovereign wealth funds will support national budgets to finance recovery, or support healthcare systems," said Mr Javier Capape, director of sovereign wealth research at the IE Centre for the Governance of Change, pointing to the examples of the sovereign funds of Iran, Kuwait and PIF.
Ireland's fund formed a rescue package for small and medium-sized enterprises, while Temasek has helped accelerate the production of a vaccine. Abu Dhabi's Mubadala was set to play a key role in propping up neighbouring Dubai's economy by linking up assets in the two emirates, sources said last month.
While the financial pain caused by the virus is undoubtedly the rainy day these funds have been built for, governments are having to weigh their use of resources now against the prospect of providing windfalls for future generations. That dilemma is especially stark in the case of oil wealth funds as hydrocarbon revenues are expected to wane in future years.
Even before the coronavirus and the plunge in oil prices, drawdowns from Kuwait's General Reserve Fund, managed by the country's sovereign fund, meant its assets are estimated by Fitch Ratings to have fallen for the sixth year in a row.
Hong Kong Monetary Authority, not an oil-based fund, will raise the liquidity of its portfolio to ensure it can provide funds for maintaining Hong Kong's monetary and financial stability, while meeting the government's needs in withdrawing fiscal reserve deposits to deal with the epidemic, said a spokesman.
A recent IFSWF survey of oil and non-oil sovereign funds found only two out of 10 said their governments had sought funds, with the same number saying they had received requests to support additional government projects.