Market Research

Sovereign Wealth Funds Reach Record Share Of Asset Ownership

Amanda Cheesley Deputy Editor 29 November 2023

Sovereign Wealth Funds Reach Record Share Of Asset Ownership

The Thinking Ahead Institute has just released new research on global asset ownership.

Sovereign wealth funds now make up a record share of assets among the largest 100 global asset owners, according to new research by the Thinking Ahead Institute.

A sovereign wealth fund is a state owned investment fund that invests in real and financial assets such as stocks, bonds, or in alternative investments such as private equity funds.   

SWFs make up 38.9 per cent of total assets among the world’s largest 100 asset owners (AO100), up from 36.7 per cent the previous year, the firm said in a statement. In absolute terms, SWFs within the AO100 now represent $9.1 trillion. This has risen as a proportion due to a slower correction in collective assets among turbulent markets – after SWFs saw the combined effects of relative investment performance and new inflows outperform over the last 12 months compared with other types of asset owner.

As a result, pension funds retain the majority share of AuM among the largest 100, with the combined assets of pension funds making up 52.8 per cent, while outsourced CIOs and master trusts are responsible for the remaining 8.3 per cent of total AuM in the AO100.

This marks a decline over the medium term. Five years ago, pension funds made up more than 60 per cent of the AO100, while SWFs represented 32 per cent or less than one third, the firm continued. Taken as a whole, the world’s 100 largest asset owners are now responsible for $23.4 trillion as of the end of 2022; experiencing a decline of nearly 9 per cent compared with the previous year when this stood at $25.7 trillion for the largest 100 asset owners at the time.

While not strictly the same as wealth management organisations, SWFs have much in common with large endowments and family offices, for example. When it comes to jurisdictions such as in the Middle East, they resemble large family offices in their time horizons and ability to make strategic acquisitions. Liberal democracies such as Norway, use oil and gas revenues to develop assets for the long term via such funds. Issues of accountability can become more challenging with the kingdoms in the Gulf, or in Brunei, for example. (At present there's controversy that Sheikh Mansour bin Zayed Al Nahyan, that vice-president of the United Arab Emirates, is backing a consortium bid to buy the Telegraph media group in the UK, raising questions over whether states should own such organisations.)

Other findings from the Thinking Ahead Institute, which provides insights and trends on the top 100 asset owners in the world, include a growing concentration of assets at the very top of the rankings across all types of organisation, and differences in investment allocations.

The very largest 20 asset owners in the world now have a total of $12.9 trillion alone and this largest 20 represent 55.2 per cent of the total AuM in the top 100. This concentration at the top of the rankings is caused by a slower decline in asset values among the largest asset owners, in the preceding 12 months. In fact, just the top five asset owners accounted for 24.4 per cent of total AuM in the study with $5.7 trillion.

Although the value of assets decreased in 2022, asset owners in Asia-Pacific account for a larger share of the assets in the top 20. Of the largest 20 asset owners, eight are from the APAC region, representing 47 per cent of the top 20 AuM. The proportion of their portfolios is spilt across equities (49.1 per cent), followed by fixed income (33.2 per cent) and alternatives (17.7 per cent).

The Government Pension Investment Fund of Japan remains the largest asset owner in the world, with an AuM of $1.4 trillion alone, the firm said. The top three also includes the two largest sovereign wealth funds. Norway’s Norges Bank Investment Management comes second with AuM of $1.3 trillion while China Investment Corporation with $1.1 trillion is third globally.

Overall, APAC accounts for 33.7 per cent of the total AuM in the AO100 study, on par with North America at 33.9 per cent, and with EMEA representing 32.4 per cent of total AuM, the firm added. Whilst pension funds dominate in North America (75 per cent) and SWFs in EMEA (71 per cent), APAC is more evenly distributed with pension funds (55 per cent) and SWFs (44 per cent). APAC funds also have the highest share in equities (47.9 per cent), followed by allocation to fixed income (35 per cent) and alternatives (17.1 per cent), the firm said.

Jessica Gao, director at the Thinking Ahead Institute, said. “Asset owners from SWFs 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.

“Despite this, we have seen some positive outcomes from such unprecedented uncertainty. New risk methodologies are emerging, from the old view of strategic asset allocation towards leading funds adopting a Total Portfolio Approach (TPA) – where goals are the central driving force and 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. Meanwhile, we’ve also noticed a renewed emphasis on positive culture, when markets put asset owners and their teams under pressure.”

“The APAC region has historically punched above its weight in the AO100 rankings due to a higher proportion of large government pensions and SWFs coupled with growing economies and demographics, and this is evidenced by the rise of China asset owners in the rankings,” Jayne Bok, head of investments Asia, WTW, added. 

“However, relative growth in assets has been slower than North America in the most recent period. One of the contributing factors is a significantly lower allocation to alternatives in APAC (17.1 per cent) versus North America (35.4 per cent). That said, I’m encouraged to see a similar trend towards TPA thinking and innovation around asset allocation, so I expect this gap to narrow as APAC asset owners catch up with their global peers on the alternatives side,” she said.

The report also reveals that the largest asset owners have an emerging awareness and understanding of the significance of artificial intelligence (AI) for investing and decision-making. Out of the 20 largest global asset owners, nine proactively reported a focus on this area of AI while 11 mentioned a growing investment in technology more broadly to support innovation.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes