Sovereign Wealth Funds Turn To New Partners

Sovereign wealth funds (SWFs) have increased dramatically in recent years regarding their numbers and assets. They have become dominant in the global capital and private markets. According to research from Global SWF, they reached a historic high in 2023, with $11.2 trillion in assets under management (AUM), while investing $125 billion globally.

In 2023, five new SWFs and nine more offices internationally opened their doors. The impact cannot be understated. Their financial activities, for example, have been an important part of the energy transition efforts.

An essential part of the growth story has been the rise of sovereign development funds as part of the global economic development push. Sovereign development funds are a tool to support economic growth and development to accelerate private market investment. Traditionally, these funds invest in infrastructure and human capital, leading to job creation and poverty reduction. Examples include the Bayelsa Development and Investment Corporation of Nigeria and South Africa’s Industrial Development Corporation.

Leading economies have become limited or general partners in such funds to promote economic development in target markets and strengthen political, diplomatic and security relations. For example, the China-Africa Development Fund is designed to inject Chinese capital into African projects.

In 2021, Indonesia launched a sovereign development vehicle, the Indonesia Investment Authority, in which China has become a leading partner. According to both governments’ statements, China’s Silk Road Fund has signed an agreement to invest approximately $3 billion.

Beijing expects the Indonesian leadership to open more sectors to foreign investment. The United Arab Emirates followed China with a pledge to invest $10 billion. Indonesia also set up a $3.75 billion toll-road fund with Canadian, Dutch, and Emirate sovereigns to develop Indonesia’s highway system further.

Similarly, the Filipino government approved its first-ever SWF, Maharlika Investment Fund, in mid-2023. The fund will support economic development of agricultue, climate mitigation, digitalization and energy projects, according to fund documents. The launched structure will encourage foreign investors, including other sovereigns, to coinvest in the country’s key projects with the Philippines government.