Today's Edition
By: Abdulla Abdulrahman AlKhaja*
Sovereign wealth funds (SWFs) emerged in the mid-20th century and rose to prominence in the following decades, becoming key players in the global investment landscape. These funds aim to drive growth and stability by investing financial surpluses, foreign currency reserves, and revenues from natural resources in international markets to achieve economic and financial objectives.
As of the end of 2024, SWFs worldwide manage assets exceeding $13 trillion, an increase of approximately 11.1% compared to $11.7 trillion in 2023. The practices of SWFs in the global economy have proven effective in promoting stability during times of crises, mitigating the risks of resource depletion or market volatility.
Domestically, these funds contribute to maintaining stability amid declining resources and market fluctuations, safeguarding the rights of future generations to a better quality of life, and supporting broad-based economic growth through diversified economies. They also champion strategies that boost investments and encourage local enterprise development.
SWFs are typically managed by national authorities. They operate under strict risk management guidelines, focusing on prudent asset allocation and diversifying value-preserving and value-adding projects, with the goal of achieving stronger medium- and long-term returns.
SWFs invest across a broad range of global asset classes, including equities, real estate, infrastructure, and technological innovation. Their aim is to diversify national economies and support investment sectors and development projects at both the local and international levels, thereby enhancing a country's competitiveness within the global economy.
By investing worldwide, SWFs help mitigate risks associated with exposure to a single national economy or specific industry.
During crises, such as the 2008 financial crunch and the COVID-19 pandemic, markets slow down, but through investment diversification, SWFs ensure they are not overly exposed to a single asset class that could suffer heavy losses.
During times of economic downturn, when asset prices are low, their investment strategies can help stabilise financial markets by providing liquidity and restoring investor confidence. Moreover, their focus on long-term investment offers a more prudent approach, as it is less affected by short-term market volatility.
Following the 2008 global financial crisis, SWFs played a critical role in rescuing global markets from collapse, particularly in the United States and Europe. They invested heavily in major companies and banks that were on the verge of failure. As a result, these funds are now highly relied upon both in the West and the East, especially as they increasingly turn their investment focus towards emerging markets in Asia, Africa, and Latin America.
SWFs also have a significant impact on infrastructure projects, such as transportation, energy, water, and technology, thanks to their ability to rapidly inject capital for long-term investments without the need to wait for external financing. In the experiences of several countries, SWFs have successfully driven major transformations in infrastructure and economic development. During periods of economic crisis, these funds serve as critical sources of financing, helping nations recover from the effects of natural disasters.
In the Middle East, the establishment of SWFs began in Kuwait in 1953, with the aim of transforming oil revenues into long-term economic security, ensuring a prosperous future for coming generations, and safeguarding the country's economic stability in the post-oil era. In the UAE, Mubadala Investment Company stands out as one of the world's leading SWFs in terms of spending, injecting $29.2 billion into global markets in 2024.
Meanwhile, Norway's Government Pension Fund Global continues to hold the title of the world's largest SWF, approaching the $2 trillion mark, followed by the China Investment Corporation. The Abu Dhabi Investment Authority manages around $1.1 trillion in assets, while the Kuwait Investment Authority manages approximately $969b. Saudi Arabia's Public Investment Fund follows closely with around $925b in assets under management.
Today, SWF investments are no longer concentrated solely in Western markets; the Global South, including Middle Eastern and developing Asian nations, has become an increasingly important destination. Investments are growing particularly in renewable and clean energy sectors, green transition initiatives, and climate change mitigation efforts. SWFs represent a formidable force in the global economy, thanks to their vast asset bases – estimated at around $136.1 billion in 2024, according to Global SWF – and their ability to adapt to economic and geopolitical shifts. They are helping to shape the future of global investment and are increasingly recognised as a critical engine for sustainable development worldwide.
*The columnist is a writer at the think-tank firm TRENDS Research & Advisory
