SWF 2050™ Report

By Salar Ghahramani

During geopolitical tension, sovereign wealth funds (SWFs) pivot their investment strategies from growth-focused to more conservative approaches, emphasizing capital preservation and risk management. A critical aspect of this shift is the increasing reliance on external asset managers, including hedge funds, which offer specialized expertise in navigating volatile markets. The external managers provide SWFs with diverse investment strategies and insights, crucial for managing risks and identifying opportunities in uncertain geopolitical landscapes. Hedge funds, with their agility and ability to employ various strategies like short selling and leverage, become particularly instrumental. They may help SWFs hedge against market downturns and capitalize on inefficiencies that emerge from geopolitical unrest, thereby playing a vital role in the reallocation of assets towards safer havens like government bonds and gold. This collaboration between SWFs and external asset managers has significant implications for global financial markets, which this report considers in detail.

More in-depth analysis and the full report is available to Global Policy Advisors® SWF 2050™ clients.

SWF 2050™ Report

By Salar Ghahramani

President Joe Biden's administration has unveiled a set of comprehensive rules aimed at curbing U.S. investments in advanced technology sectors within China. These measures underscore the administration's growing concerns about the potential national security implications of American capital flowing into Chinese tech industries. Of particular note is how these regulations might impact the China Investment Corporation (CIC), a prominent sovereign wealth fund. The CIC, which has traditionally been active in various global investments, may find its U.S. technology ventures under increased scrutiny or face restrictions on new investments. The rules highlight specific sectors where investment will be restricted, reflecting the U.S. government's intent to protect national interests and technological edge. This move not only signals a continuation of the strategy to decouple certain elements of the U.S. and Chinese economies but also emphasizes the challenges that institutional investors like the CIC might face in navigating the complex geopolitical, regulatory, and legal landscape landscape.

More in-depth analysis and the full report is available to Global Policy Advisors® SWF 2050™ clients.

By Salar Ghahramani

The Alaska Permanent Fund, a sovereign-wealth fund valued at $77 billion, has recently outlined plans to cut back on its investments in private equity. This asset class has been a major focus for the fund in recent years.

Board's Decision to Cut Private Equity Allocations: During its quarterly meeting held on May 17 and 18, the board of trustees agreed to a revised strategy. For fiscal year 2025, they approved a reduction in target allocation to private equity from the original 19% to 15%. This adjustment represents a notable shift from the five-year asset-allocation plan approved back in May 2020.

Establishment of Tactical Opportunities Portfolio: Further, the board gave a green light to the creation of a tactical opportunities portfolio, setting a target allocation of 2%. The Alaska Permanent Fund aims to invest this portfolio across public and private markets. The strategy will focus on exploring opportunities that may not align with the conventional categories within the portfolio, yet are anticipated to display "equity-like" returns.

Chief Investment Officer's View on Private Equity: The adjustment in policy follows the concerns raised by the fund's Chief Investment Officer, Marcus Frampton. He cautioned against "excesses" within the private-equity market and expressed that the valuations of such assets were currently higher than their justified values. Frampton further stressed on the importance of risk mitigation in order to preserve liquidity for the Alaska Permanent.

First Quarter Portfolio Outflows: The beginning of the year has been marked by notable net outflows from the fund's investment portfolio. This includes nearly $21 million specifically from its private-equity portfolio, resulting in a total net outflow of around $1.2 billion in the first quarter of the year.

Current and Future Commitments to Private Equity: The fund's private-equity assets stood at $15.3 billion as of March 31, accounting for almost 20% of the total fund's portfolio. This surpasses the interim 17% target that was set as part of its five-year plan for the fiscal year ending June 30, 2023. It has actively backed funds managed by seasoned firms such as Advent International, Bain Capital, GTCR, Hellman & Friedman, and Insight Partners.

In the years leading up to 2021, the fund committed an average of $1.8 billion per year to private equity. However, for the fiscal year ending June 30, 2023, commitments are on track to be around $1 billion, with the same amount targeted for the following year.

Debate Among Board Members: The decision to adjust the asset-allocation plan sparked debates among the board members. Some trustees questioned the wisdom of reducing the fund's private-equity investments during a period of economic uncertainty that could bring attractive, lower-valuation opportunities in the market.

Implications: The decision made by the board of trustees of the Alaska Permanent Fund will undeniably have significant implications. With a reduced allocation to private equity, the fund's portfolio will become more diversified, which may potentially increase its resilience against market volatility.

On the other hand, the decision raises questions about missed opportunities in the private equity market. With economic uncertainty prevalent, there might be an influx of high-potential, lower-valuation investment opportunities.

Simultaneously, the creation of the tactical opportunities portfolio brings a new aspect to the fund's investment strategy. This venture may open doors to diverse opportunities in both public and private markets that do not fit into traditional investment categories, thereby offering potentially lucrative "equity-like" returns.

Lastly, it will be interesting to observe how the fund navigates through its private equity commitments in the upcoming years. A reduction in the annual commitment from $1.8 billion to $1 billion, while aiming to maintain strong partnerships with established firms, will be a delicate balance to maintain.

This strategic shift might signal a change in the overall approach towards private equity among similar funds, with many possibly reviewing their investment policies in light of this new direction. However, only time will tell if this decision is a strategic masterstroke or a missed opportunity.

Salar Ghahramani is the founder of Global Policy Advisors.

By Salar Ghahramani

Abstract: The proposed Belt and Road Oversight Act, currently under consideration by the U.S. Senate's Committee on Banking, Housing, and Urban Affairs, outlines an extensive system to scrutinize investments by China's sovereign wealth funds, including the China Investment Corporation (CIC), in the context of the Belt and Road Initiative (BRI). The Act calls for wide-ranging reporting, examination, and strategic planning by assigned "Country China Officers" in U.S. embassies across the globe. This brief provides an overview of the proposed legislation, highlighting its potential implications for monitoring and understanding the influence of the CIC and other Chinese entities within the BRI.

Introduction: The Belt and Road Initiative (BRI) is a comprehensive project by the Chinese government to increase regional integration and expand its global influence. The initiative includes numerous infrastructure projects, primarily financed by China's banking systems and sovereign wealth funds, such as the China Investment Corporation (CIC). The proposed Belt and Road Oversight Act ("the Act"), now being considered by the U.S. Senate's Committee on Banking, Housing, and Urban Affairs, is intended to enhance scrutiny of these investments, but, if passed, would likely add to the existing points of geopolitical contention in international economic affairs between the two countries.

The Proposed Belt and Road Oversight Act: The Act, if passed, would put in place a system for monitoring and reporting on China's activities worldwide. This includes designating a "Country China Officer" in each U.S. embassy, tasked with compiling comprehensive reports on Chinese government's equity and assets within their respective countries. The responsibility extends to tracking infrastructure projects funded by the Chinese banking system, its sovereign wealth funds, and international financial institutions.

China Investment Corporation's Role and Influence: As a prominent sovereign wealth fund active in the BRI, the CIC plays a significant role in China's foreign investments. Understanding its investments is critical for comprehending the breadth of China's economic influence. The proposed Act, with its comprehensive reporting requirement, could provide a means to evaluate the extent of CIC's involvement, associated risks, and the broader implications for economies receiving these investments.

Debt Obligations, Collateral, and China's Assets: The Act also proposes an evaluation of each country's total debt obligations to China. An understanding of these obligations is key, given their potential to highlight economic vulnerabilities tied to the BRI. The reporting would entail detailing any known or speculated collateral tied to the debts accrued by BRI projects and identifying assets owned by Chinese entities within these nations.

Strategy to Counter China's Influence: The proposed Act calls for the development of a comprehensive, country-specific strategy to counter China's influence by each Country China Officer. This strategy aims to equip diplomatic personnel with the means to mitigate China's impact. Annual reports summarizing these strategies, alongside the identification of specific challenges and opportunities linked to China, are to be provided under Act.

Assessing Procurement Needs and Alternative Financing: The Act encourages analysis of potential procurement and infrastructure needs and the likelihood of Chinese financing for such projects. It recommends that the United States International Development Finance Corporation focus on providing alternative financing opportunities, particularly for countries targeted by the BRI.

Implications: The proposed Belt and Road Oversight Act presents a comprehensive system for tracking, evaluating, and developing responses to China's growing global influence through the BRI. By zeroing in on Chinese entities like the China Investment Corporation, the Act, if passed, could provide a detailed understanding of China's overseas investments and their implications for international economics and geopolitics by US policy-makers but could also create additional points of contention between the two countries.

Salar Ghahramani is the founder of Global Policy Advisors.

By Salar Ghahramani

Introduction: As global markets grapple with economic uncertainties and mounting inflationary concerns, sovereign wealth funds are adapting their investment strategies to ensure stability and growth. The Australian sovereign wealth fund, known as the Future Fund, is a prime example, as it moves to increase its exposure to private equity, small-cap equities, gold, and commodities.

The Future Fund's Adaptation: The Future Fund has announced plans to lift its exposure to private equity and small-cap equities, according to a report by VCCircle. This move is part of a broader effort to diversify investments in pursuit of higher long-term returns while reducing risk. At the same time, the fund is acquiring gold and commodities, as reported by Reuters, in response to concerns about potential inflation and economic uncertainties.

​Established in 2006, the Future Fund was designed to address the Australian government's future pension liabilities. Over the years, the fund has seen significant growth, with its valuation now exceeding AUD 200 billion. The investment strategy of the Future Fund revolves around allocating capital across various asset classes and regions to strike a balance between risk and return.

Investing in Private Equity and Small-cap Equities: By increasing its exposure to private equity and small-cap equities, the Future Fund is betting on the long-term growth potential of these assets. Private equity investments involve channeling capital into private companies in exchange for equity ownership. These investments can yield substantial returns if the businesses excel. Small-cap equities, which represent shares in smaller publicly traded companies, are often viewed as high-growth opportunities. However, their inherent risks are amplified due to market volatility and the companies' sizes.

Turning to Gold and Commodities: The Future Fund's decision to invest in gold and commodities stems from concerns regarding a potential resurgence of the inflationary pressures experienced during the 1970s. In that decade, high inflation rates eroded purchasing power, prompting investors to seek refuge in commodities and precious metals as a hedge against inflation. Gold, in particular, is regarded as a safe-haven asset during periods of economic uncertainty, functioning as a store of value when other assets depreciate.

The Global Context: The Australian sovereign wealth fund's decision to diversify its portfolio comes at a time when other global wealth funds are making similar moves. For instance, the Norwegian sovereign wealth fund is also increasing its exposure to various asset classes, and considering the possibility of investing in private equity and unlisted equities, as part of a government request to boost long-term returns and reduce risk. These strategic shifts in investment approaches reflect the growing concerns about economic instability and the need for more resilient portfolios.

Implications: By diversifying its investments and raising its exposure to a range of assets, the Future Fund aims to secure higher long-term returns while managing risk. Its investment choices in private equity, small-cap equities, gold, and commodities signal a concerted effort to steer through an unpredictable economic landscape and safeguard its assets from potential inflationary threats. The Australian sovereign wealth fund's moves highlight the need for proactive strategies to ensure stability and growth in a challenging global economic environment.

Salar Ghahramani is the founder of Global Policy Advisors. 

By Salar Ghahramani
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Recently, Norway's Ministry of Finance, led by Minister Trygve Slagsvold Vedum, asked Norges Bank Investment Management (NBIM) to explore various aspects of private equity (PE) investments and lift the existing ban on investing in non-traded PE firms. The request is aimed to potentially expand the investment mandate of the country’s Government Pension Fund Global (GPFG), which currently holds $1.35 trillion in assets and is one of the world’s largest sovereign wealth funds (SWFs).  


This development could be driven by a desire to keep up with other sovereign wealth funds, such as Saudi Arabia's Public Investment Fund (PIF), which have diversified their portfolios by investing in various private equity and venture capital firms, including those that are not publicly-traded and essentially form the vast majority of the buyout funds that exist in the PE/VC universe. (The full list of PIF's buyout investments, through its venture capital arm Sanabil Investments, can be found here and is very much worth a read, as it highlights the diverse nature of these endeavors.)


As a structural/governance background, it is essential to provide the following context: most PE firms are closed-end funds and are characterized by partnerships between general partners (GPs)—which are the PE firms themselves that manage the funds—and limited partners (LPs), various investors, including institutional ones such as pension funds and sovereign wealth funds. The limited partnership agreement outlines the amount of risk each party takes, as well as the fund's duration. LPs are liable for up to the full amount of their investment, while GPs bear full liability in the market.


Investing in private equity can provide several benefits for SWFs, but it also comes with certain implications, particularly concerning transparency. First, the potential benefits:

1. Diversification
2. Enhanced returns
3. Increased competitiveness
4. Access to innovative companies
   
   
   

But, there are serious transparency concerns with PE, especially for SWFs operating within democratic systems and with strict public disclosure mandates, such as the ones governing GPFG:

1. Limited disclosure: Most private equity firms are not held to the same strict disclosure rules and standards as public companies. This limited transparency could make it more challenging for GPFG--and the Norwegian public--to assess and monitor its investments in private equity accurately, especially since the vast majority of PE firms are not publicly-traded.
2. Operational risks: Due to the lack of public reporting requirements, private equity investments may carry more operational risks than publicly traded companies. These risks could include financial mismanagement, fraud, or regulatory issues, which may negatively impact the fund's investments.
3. Reputational risks: Investing in private equity could expose GPFG to reputational risks if its investments are associated with controversial practices or industries. As a government-owned entity, the fund must consider the potential impact of its investments on Norway's reputation.

These challenges can obscure the true investment risk within LPs' portfolios—including those of SWFs—since standardized reporting on returns, fees, and underlying asset data is not readily available. The lack of transparency may also unintentionally create a misalignment of interests between LPs and GPs, despite the current trust-based framework that has been the bedrock of the PE investment universe.

​As a result, while Norway's sovereign wealth fund explores the possibility of investing in private equity, it must consider both the potential benefits and the implications regarding transparency, governance, and reputational risks. Expanding GPFG's investment mandate could certainly help the fund remain competitive in the global financial landscape, diversify its investments, and enhance its returns, so long as the associated risks are adequately managed and addressed. 
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Salar Ghahramani is the founder of Global Policy Advisors.

By Salar Ghahramani

Over the weekend, OPEC+ unexpectedly decided to reduce oil output, causing an initial 8%+ spike in US crude prices. This unforeseen decision, contrasting with market expectations of a production boost, carries substantial implications for the worldwide oil prices, the energy markets, and the overall global macroeconomic picture, given the decision’s potential impact on inflation and interest rates. 

​This article consider whether the sovereign wealth funds (SWFs) of the OPEC+ nations—including their external fund managers—should (or could) have been informed of the decision by their respective OPEC+ representatives in advance, even just as courtesy. After all, if SWFs are an integral part of a country's macroeconomic apparatus, wouldn't it make sense for the institutions within the apparatus to coordinate in order to achieve the best possible national economic outcome? 

Before addressing the question, a brief background: OPEC+ consists of OPEC members and other significant oil-producing countries, many of which have sovereign wealth funds. Notable OPEC+ members with SWFs include Saudi Arabia (Public Investment Fund), the United Arab Emirates (Abu Dhabi Investment Authority and Mubadala Investment Company), and Russia (Russian National Wealth Fund). 

Other SWFs from OPEC+ states include the Kuwait Investment Authority (KIA), the Investment Corporation of Dubai (ICD), Oman's State General Reserve Fund (SGRF), Bahrain's Mumtalakat Holding Company, and others. 

(Norway, a major oil exporter that is not a part of OPEC+, possesses the largest SWF globally, known as the Government Pension Fund Global, or GPFG.)

As written in previous works on SWFs, ascertaining a definitive description of a sovereign wealth fund proves elusive, as does the generalization of their objectives and investment methodologies. The funds' purposes may span various areas, including counterbalancing macroeconomic consequences of abrupt export revenue escalations, administrating pension assets or a distinct allocation of foreign exchange reserves, and enabling intergenerational wealth distribution. Additionally, SWFs display diverse investment strategies, allocating resources across a wide array of asset classes.

Naturally, the funds hold a crucial position in macroeconomic governance and worldwide financial equilibrium. For them to be successful, close collaboration with other macroeconomic governmental entities may be a necessity, as the resources of SWFs and the yields they produce exert considerable influence on public fiscal affairs, monetary conditions, external accounts, and worldwide balance sheet interconnections.

Accordingly, for the purposes of this article, it would have made sense for the OPEC+ ministers and/or representatives to inform the SWFs of their respective home countries that an oil production cut was imminent, in case the national SWFs would have benefited from such information and could have placed oil price-sensitive trades—or adjusted their portfolios in other manners—in order to maximize the SWF’s returns or to hedge against adverse market reactions in the global equity markets or elsewhere--assuming that there would have been enough time for the SWFs to make proper portfolio adjustments. 

(It is worth noting here that SWFs are mostly long-term investors, although, theoretically, and barring any legislative or internal restrictions, they could trade anything, anywhere, any time, and hold a position for any duration of time.) 

Against this backdrop, if there is sufficient amount of time for a SWF to make the necessary adjustments in order to preemptively trade on--and potentially benefit from--the "inside" news such as the one out of OPEC+, should the information-sharing be a cause for concern for other, non-SWF, market participants? Would the intra-governmental coordination constitute a form of market manipulation, or simply benignly-coordinated economic policy making? 

As I note in my forthcoming book chapter titled “Institutional Framework and Governance Structure of Sovereign Wealth Funds,” SWFs have a wide range of governance mechanisms that may, or may not, allow for trading on such inside information. For some SWFs, information-sharing and actionable policy coordination with other national economic institutions may not even be viable due to the structural frameworks within which a number of SWFs operate. 

Ultimately, while there may be potential benefits to informing SWFs of major decisions like the OPEC+ output reduction, it is essential to weigh these benefits against the potential risks to market integrity and the SWFs' own governance principles. Further research and analysis are needed to explore the most effective ways for SWFs to engage with their respective governments and the international economic community to achieve the best possible economic outcomes while maintaining transparency, market fairness, and adherence to their institutional and governance frameworks.

Salar Ghahramani is the founder of Global Policy Advisors.

By Salar Ghahramani

​Canada and the UAE are launching a SWF Council (SWFC). The SWFC aims to maximize the potential of both countries' leading institutional investors, fostering strategic capital collaboration and thought leadership between Canadian public pension funds (PPFs) and UAE sovereign wealth funds (SWFs).

By Salar Ghahramani

Kazakhstan's sovereign wealth fund, Samruk-Kazyna, is dissolving its management board, which is chaired by the country's first president, Nursultan Nazarbayev. This move is likely an attempt to reduce the influence of the Nazarbayev family. The management council has been a consultative and advisory body focused on the fund's development and competitiveness. A draft law proposing amendments to legislation regarding the council's dissolution is being developed and will be submitted to the lower house of parliament after coordination with relevant government agencies.