Sovereign wealth funds (SWFs) have increased dramatically in number and assets in recent years. They came to dominate the global capital market and private markets. They hit an all-time high in 2023 with assets under management (AUM) of $11.2 trillion while investing $125 billion globally, according to Global SWF research.
In 2023, five new GIFs and nine more offices around the world opened their doors. The impact cannot be underestimated. Their financial activities, for example, have been an important part of energy transition efforts.
An important part of the growth story was the emergence of sovereign development funds as part of global economic development. 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 the Industrial Development Corporation of South Africa.
Leading economies have become limited or general partners of 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 mechanism, the Indonesia Investment Authority, with China as its lead partner. China’s Silk Road Fund has signed an agreement to invest about $3 billion, according to statements from both governments.
Beijing expects Indonesian leaders to open up more sectors to foreign investment. The United Arab Emirates followed China’s lead, pledging to invest $10 billion. Indonesia has also created a US$3.75 billion toll road fund with the participation of the governments of Canada, the Netherlands and the Emirates to further develop Indonesia’s highway system.
Likewise, in mid-2023, the Philippine government approved its first-ever SWF, the Maharlika Investment Fund. According to fund documents, the fund will support agricultural economic development, climate change mitigation, digitalization and energy projects. The launched framework will encourage foreign investors, including other governments, to co-invest in key projects in the country with the Philippine government.