Over the last three years, Global SWF LLC has produced a quite useful GSR Scoreboard, which assesses the Governance, Sustainability, and Resilience progress and efforts of the world’s 200 largest State-Owned Investors.Global SWF has just released it latest GSR Scorecard. They note the following:
Significant increase in GSR scores across the board when compared to the past three years;
Pix Credit here - Largest improvement among SWFs, which are catching up quickly with pension funds; and around sustainability, as funds intensify their impact activities and reporting;
- Overall ranking led by Temasek, which continues to be highly regarded, sought after, and used as a model by governments across the world – do not miss the main feature on pages 20-25 of the report;
- Three other funds with full marks: CDPQ (Global SWF’s 2022 Fund of the Year), NZ Super (best financial performance in the past decade); and NSIA (remarkable case in the African context);
- Regionally, the Middle East has seen the largest improvement, from 32% in 2020 to 52% in 2023. PIF is leading the way with some unprecedented efforts around sustainability in the region;
- We expect the scores to keep increasing in the years to come as funds mature and recognize the importance of aligning with best practices around governance, sustainability, and resilience.
The Executive Summary follows below. The full report may be accessed HERE.
We are delighted to present the 2023 GSR Scoreboard, the most comprehensive analysis on the Governance, Sustainability and Resilience (“GSR”) practices and efforts of the world’s major State-Owned Investors (“SOIs”), including Sovereign Wealth Funds (“SWFs”) and Public Pension Funds (“PPFs).
The assessment tool was first introduced by Global SWF in 2020 to jointly address important aspects such as transparency and accountability, impact and responsible investing, and legitimacy and long-term survival. Four years later, the system is embraced as a key metric among sovereign and pension funds globally.
The scorecard is designed to be fully independent (as we are not commissioned by anyone to do it), quantifiable (assessing progress over time), and objective (based only on publicly available information). The scoring is based on 25 different elements: 10 related to governance, 10 to sustainability, and five to resilience, which are answered binarily (Yes / No) with equal weight and then converted into percentage points.
The 2023 edition seeks relevance and continuity: there have been no changes to the elements, to the methodology, or to the universe of funds (100 SWFs and 100 PPFs), although we have assessed a total of 15 new funds that have been established recently or have gained importance or activity in the past 12 months. For example, we include for the first time three SWFs recently established in Namibia, Israel, and Hong Kong.
The preliminary results were sent on May 15 to all 200 funds, which were given six weeks to provide any comment or additional information. We were pleased to see an increasing level of engagement, and over 30% of all the funds reached out to us trying to understand the system better and to improve their scores.
The results of the 2023 GSR Scoreboard are remarkable. We have observed a very significant increase in the overall score across funds from 59% in 2022 to 63% this year. The improvement has been most apparent among sovereign funds, which are catching up quickly with pension funds; and around sustainability, as funds are increasing their impact activities and reporting them in a regular and meaningful way.
The regional diversity of the leaderboard is testament to the fairness of the assessment tool. The GSR Scoreboard is a great equalizer and sovereign investors demonstrate that best practices are not only found in Western markets and among the largest institutions.
The overall ranking is led by Temasek, the largest investor among those achieving a 100% score. Almost 50 years old, the Singaporean entity is highly regarded, sought after, and used as a model by governments across the world, and we are delighted to showcase their success in an extensive feature and interview on pages 20-25 of this report.
Together with the Asian investor, there are three other funds with full marks: CDPQ, which was the recipient of Global SWF’s 2022 Fund of the Year award; NZ Super, which reported the best financial performance in the past decade; and NSIA, which has been an example of good governance, sustainability, and resilience since it replaced ECA in 2012.
Following the leaders is a group of eight high-scoring institutions: two from North America (CPP, BCI), three from Europe (PGGM, ISIF, COFIDES), one from Asia (GPF), and two from Australia (Future Fund and Aware Super). The presence of a Nigerian SWF and a Thai pension fund in the leaderboard demonstrates that high scores – and best practices – can be achieved in very different contexts.
Sovereign wealth funds continue to improve their best practices: when we first completed this exercise in 2020, the average score of SWFs globally was 46% – today it is 55%, even with the entry of new funds that usually present worse results at inception. Sovereigns are improving their disclosure and their “G” element has risen dramatically. Despite the improvement, they are still failing the “S” and “R” elements with 4.9/10 and 2.1/5 respectively, but we believe this will change in the next few years as funds keep maturing.
Public pension funds continue to display better marks than sovereigns across the board. This year we have witnessed an amazing push for sustainability, with many pension funds issuing their first responsible investing reports and providing more information around ESG key metrics. The improvement in resilience was much more modest, given the performance of the 2022 financial markets that affected funding ratios greatly. We would expect their “R” element to improve in the short-term, as stronger policies bear fruit.
The scenario in which State-Owned Investors are operating as of June 30, 2023 is quite different than what it was at 2022 year-end. Financial markets have recovered some of the lost ground, and the world’s 13 largest indices are up on average +10.8% this year so far.
And it is not only listed equities – in public markets, bonds are up +3.1%, and hedge funds are up +2.0%. Measuring private markets is always trickier as it depends on how often investors value their portfolios, but the related benchmarks have also been positive with +8.6%for private equities. Real estate and infrastructure, on the other hand, are almost flat when compared to December 31, 2022.
The world’s largest economy, the USA, saw a +1.3% increase in real GDP in the first quarter of 2023, down from +2.6% in the fourth quarter of 2022. Importantly for investors, the US inflation rate has come down from 9.1% (highest level since 1981) to 4.0% in the past 12 months, thanks to an aggressive interest rate hike to 5.1% by the Fed. The war in Ukraine is still ongoing, which keeps commodity prices relatively elevated.
The average price per barrel of Brent oil during the first half of 2023 was US$ 80, which, even if lower than the US$ 99 in 2022, is still advantageous for those SWFs hailing from commodity-rich economies. The latest breakeven prices forecasted by the IMF show that Qatar and the UAE will enjoy the largest windfalls this year, while Saudi, Kuwait and Oman will run modest surpluses, and Bahrain will still bear a significant deficit.
In the meantime, the tensions between the US and China are becoming increasingly apparent and several SOIs, including Canadian funds, have stopped their China investment programs and offices altogether.
In this context, sovereign investors suffered very significant losses in calendar year 2022. We offered an estimate and trailing numbers in our 2023 Annual Report issued on Jan 1, and are now in position of sharing the final numbers as reported by most funds. The average return for sovereign investors in CY22 was -8.0%.
That said, some of these institutions are recovering well in 2023, and Q1 returns have been quite positive so far, e.g., NBIM (+5.9%), NZ Super (+5.2), CPP (+3.6%), Future Fund (+3.4%) and Alaska PFC (+2.6%). We expect Q2 returns to be equally positive, given the returns of the benchmarks reflected on page 6.
The significant losses endured by sovereign and pension funds during 2022 meant that, for the very first time in history, their assets under management (AuM) decreased year-on-year. However, the fall of SWFs was partly cushioned by the windfall received by some of the oil-fueled institutions. Together with the recovery in financial markets, Global SWF estimates that as of June 30, 2023, the AuM of SWFs is back at 2021 levels, and will be assisted further by the newly established SWFs reflected on page 9. On the contrary, pension funds are recovering at a slower pace and prospects are slightly more negative for the second half of 2023.
The investment activity of the first half of 2023 shows the concerns and caution of SWFs and PPFs in the current macro and geopolitical environment. Sovereign Investors deployed US$ 106.8 billion, exactly the same than in the second half of 2022, but only in 270 deals. Investments are fewer, but larger on average.
As sovereign investors shy away from venture capital and smaller commitments, some of the key trends we have observed for the past year or so are the renewed interest in hedge funds as an uncorrelated strategy, and a peak in the commitments and direct investments in private markets, especially in private credit.
The pressure on achieving sustainability goals at organization level is also having an impact in the investment preferences of sovereign investors. In 2021 and 2022, we saw for the first time investments in “green assets” (mostly renewable energy) beating investments in “black assets” (mostly, oil and gas and mining). This trend has stayed the same during the first half of 2023, which saw significant activity. Some of the largest deals included GIC’s and Temasek’s investment in Australia’s energy retailer Origin, Saudi NDF’s investment in the world’s largest green hydrogen production facility, Mubadala Capital’s commitment to renewable fuel in Brazil, and NBIM’s acquisition of a 49% stake in Iberdrola’s Spanish renewables portfolio.
Apart from returns, changes in AuM, and investments, there have been other activities worth mentioning including the establishment of new sovereign funds and offices all around the world:
Besides new SWFs and offices, Sovereign Investors continue to have a significant churn ratio at the leadership level. During the first six months of the year we have seen 13 changes in CEOs, as follows:
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