Home > News > Asset Allocation > Sovereign Wealth Funds Taking Up Larger Share of Global Asset Ownership

Asset AllocationNovember 28, 2023

Sovereign Wealth Funds Taking Up Larger Share of Global Asset Ownership

As of 2022, SWFs make up 38.9% of total assets among the world’s largest 100 asset owners, up from 32% in 2021.

Sovereign wealth funds are steadily increasing their share of assets. These funds now account for 38.9% of all assets under management among the world’s 100 largest asset owners by AUM, according to research from WTW’s Thinking Ahead Institute. Meanwhile, the value of the assets managed by these owners declined nearly 9% to $23.4 trillion in 2022.

SWFs in the study manage a collective $9.1 trillion, while pension funds within WTW’s Asset Owner 100 Index manage 52.8% of all AUM. According to the report, sovereign wealth funds accounted for 32% of AUM in 2017, while assets managed by pension funds made up 60% of AUM that year.

“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,” said Jessica Gao, associate research director at the Thinking Ahead Institute, in the report.

In North America, pension funds accounted for 75% of all assets in the top 100, while outsourced chief investment officer providers and sovereign wealth funds accounted for 23% and 2%, respectively. In the region covering Europe, the Middle East and Africa, pension funds accounted for 29% of assets, while sovereign wealth funds accounted for 71% of all assets, which WTW attributed to the prominence of Middle Eastern sovereign wealth funds. In the Asia Pacific region, pension funds and SWFs accounted for 55% and 44% of AUM, respectively.

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The largest 20 asset owners currently manage $12.9 trillion and make up 55.2% of AUM of the 100 largest asset owners. The five largest asset owners—four of which are SWFs—collectively manage 24.4% of all AUM within the top 100, worth $5.7 trillion:

Government Pension Investment Fund (Japan; pension fund)
Norges Bank Investment Management (Norway; sovereign wealth fund)
China Investment Corp. (China; sovereign wealth fund)
SAFE Investment Co. (China; sovereign wealth fund)
Abu Dhabi Investment Authority (United Arab Emirates; sovereign wealth fund)

The report indicated multiple shifts in strategy observed by WTW in 2022.

“New risk methodologies are emerging, from the old view of strategic asset allocation toward 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,” Gao said in the statement. “Meanwhile, we’ve also noticed a renewed emphasis on positive culture, when markets put asset owners and their teams under pressure.”

The report also detailed topics, trends and challenges on the minds of asset owners. For example, according to the report, nine of the top 20 asset owners reported recognizing the significance of artificial intelligence, while two mentioned they are using AI to make climate action decisions.

“Globally significant asset owners are showing greater awareness and planning for globally significant trends,” Gao said.

Norway’s Sovereign Wealth Fund Drops $44.7B in Market Value in Q3

500 Largest Asset Managers Increase Assets by 10.2% in Past Year

IFSWF Admits New Members Among its Global Sovereign Wealth Fund Network

Tags: AO100, Asset Owners, Jessica Gao, sovereign wealth funds, WTW, WTW Thinking Ahead Institute

Home > News > Research > Higher Interest Costs Will Continue for Some Time, Study Says

Research November 27, 2023

Higher Interest Costs Will Continue for Some Time, Study Says

The so-called ‘natural interest rate’ is on the rise and will keep the cost of money aloft into the 2030s, per Bloomberg Economics.

By Larry Light

You have heard the phrase “higher for longer” about interest costs. For how much longer, though? By one estimate, well into the next decade.

The common wisdom is that the Federal Reserve sets interest rates, and, indeed, the body’s federal funds rate is the key U.S. benchmark for other rates. But a broader force is at work, long known in economics as “the natural rate of interest,” also known as a neutral interest rate or R-star.

This “natural” rate is on the ascent and projected to remain high into the 2030s, according to research by the Bloomberg Economics unit. If that is accurate, overall interest charges, for everything from corporate bonds to credit card loans, will remain on the high side for some time, compared with the low cost of money people had enjoyed until last year.

Previously, the natural rate—which would keep the economy in balance at full employment (typically 95% or above)—was estimated in the vicinity of 1.7%, and now it is approaching about 2.7%, where the Bloomberg study predicted it will stay for years into the 2030s. This rate is a baseline, and longer-term bonds will yield at least a couple of percentage points above it.

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The Bloomberg economists noted that the natural rate is hard to place with precision because it is an agglomeration of numerous factors that range far beyond Fed actions. It is a theoretical estimate and depends on some factors that cannot be measured and others that move in opposite directions.

Current examples: rising inflation, higher levels of government borrowing, bigger climate change spending from private and public sources, retiring Baby Boomers drawing down their savings, and an explosion in technological advances, particularly artificial intelligence.

Different scholars have put these all together in different ways, but the Bloomberg estimates generally agreed with others in pointing toward higher-for-longer rates. The lack of more precise figures—such as the exact current rate—has spurred Fed Chair Jerome Powell to downplay the natural rate’s usefulness.

A Bloomberg summary (the study was not released by Bloomberg’s economics unit) explored the impact on the U.S. economy of a higher natural rate. For instance, Bloomberg indicated, the 10-year U.S. Treasury yield could settle around 4.5% to 5%, where it is now, or perhaps as high as 6%.

A long spell of higher rates would have both pluses and minuses, the Bloomberg study suggested. On the negative side, there will be many years ahead where more companies will be unprofitable due to higher borrowing costs, homeowners will have higher mortgage costs, the stock market will face headwinds as low rates vanish, and Washington will have a bigger interest payout, thus risking deeper deficits. On the positive side, bondholders will enjoy sweeter yields. Any impact on inflation, however, is not known.