Sovereign Fund Assets Hit Record Levels: Study

In a groundbreaking shift, sovereign wealth funds now constitute an unprecedented 38.9% of total assets among the world’s largest 100 asset owners, according to recent research by the Thinking Ahead Institute.

The study highlights a remarkable ascent for sovereign funds, which now represent $9.1 trillion in assets absolute terms within the top 100.

The list of the world’s largest asset owners is maintained by the Thinking Ahead Institute, which is part of global financial services and consulting giant WTW.

The institute attributed the surge in the proportion of sovereign assets to a slower correction in collective assets during turbulent markets over the past 12 months. The research found that sovereign funds outperformed in terms of relative investment performance compared to other major asset owners. These funds also witnessed new inflows during the period.

Pension funds in the top 100 asset owners — many of which are large US public plans — account for just over half (52.8%) of all assets in the list. Outsourced chief investment officers (OCIOs) and master trusts collectively contribute the remaining 8.3% of assets.

This marks a clear decline over the medium term for pension fund assets, the Thinking Ahead Institute reported, as five years ago pension funds held over 60% of assets in the top 100, with sovereign funds representing less than one third at 32%.

As of the end of 2022, the world’s 100 largest asset owners collectively managed $23.4 trillion, experiencing a decline of nearly 9% compared to the previous year when the figure stood at $25.7 trillion.

Jessica Gao, director at the Thinking Ahead Institute, said: “Asset owners from sovereign wealth funds to pension funds have navigated a year when volatility and uncertainty in the global economy have been at their highest in a generation — with often divergent outcomes.

“The disruption caused by elevated inflation and increased interest rates has affected equity and bond markets on a global scale, putting extra pressure on asset owners to reassess and adjust their strategies.

“The shift from an era of low inflation and interest rates has given a rise to a new macroeconomic landscape that demands a fresh understanding and management approach. This is impacting different types of asset owner in different and unexpected ways.”

Adopting a total portfolio approach

Gao added that, despite the turbulent year, there had been some “positive outcomes”. Chief among these was a shift towards a “total portfolio approach” to risk management and asset allocation.

The approach, Gao explained, involved investment goals being treated as “the central driving force” for asset owners, while “best ideas are incorporated through a competition for capital at the total portfolio level”.

“That has also allowed some large asset owners to ride escalating market waves with better short and medium-term outcomes too,” she said.

Gao also said the Thinking Ahead Institute had observed “a renewed emphasis on positive culture, when markets put asset owners and their teams under pressure”.

In addition, the report revealed an emerging awareness among the largest asset owners regarding the significance of artificial intelligence in investment and decision-making processes. Nine out of the top 20 global asset owners proactively reported a focus on artificial intelligence, the research found, while 11 mentioned a growing investment in technology to support innovation.

By the numbers

The largest asset owner in the world, according to the Thinking Ahead Institute’s research, remains the Government Pension Investment Fund (GPIF) of Japan with $1.4 trillion as of the end of 2022. This total had risen to nearly $1.5 trillion by the end of June, according to the GPIF.

Norway’s Norges Bank Investment Management was second with $1.3 trillion in assets for its Government Pension Fund—Global, while fellow sovereign fund China Investment Corporation had $1.1 trillion.

The largest 20 asset owners in the world had a total of $12.9 trillion in assets at the end of 2022, representing 55.2% of the total assets in the top 100. This concentration at the top of the rankings was caused by a slower decline in asset values among the largest asset owners in the preceding 12 months, the report found.

North American asset owners accounted for more than a third (33.9%) of total assets, the largest region by asset value, closely followed by Asia Pacific with 33.7%. Europe, the Middle East and Africa represented 32.4% of total assets.