Capital Ideas: Looking Inward: How SWFs Served as Fiscal Buffers for their Economies During Covid-19

by: Mary Menzemer

According to The Sovereign Wealth Funds 2020 Report recently published in conjunction with ICEX and IE Business School, sovereign wealth funds have not escaped the impact of the extraordinary economic situation in the world economy caused by the Covid-19 pandemic. As a result, they have sought to reorient their strategies in response to these exceptional circumstances, which includes promoting the creation of economic relief programs or directly investing within their own economies.

While several investment patterns and practices remain consistent with pre-Covid patterns, several themes have emerged from the crisis to extend prior experience. The data sample notes significant engagement of the Russia Direct Investment Fund (RDIF) in Russia’s Covid response, as well as a discrete increase in investment cooperation between Russia and China through the Russia-China Investment Fund (RCIF). The RDIF engaged in various phases of its government’s vaccine development efforts, including investing in vaccine production through various portfolio companies.

Also relevant is the emergence of the Turkey Wealth Fund (TWF), who has emerged as an active investor during this period as well as Ireland Strategic Investment fund (ISIF), who created a sub-portfolio as a response to the pandemic and its potential long term impacts. To support the largest Turkish mobile phone operator, TWF acquired a controlling stake of 26.2% in Turkcell. Other investments were focused on Turkey’s financial sector, including the 20% acquisition of the payment and card systems company, Platform Ortak Kartli Sistemler, that was previously owned by state-owned banks. Similarly, the fund invested $293 million into the development of the Istanbul Finance Center in order to enhance Istanbul’s position as the de-facto finance capital of the region.

The (ISIF) established a discrete sub-portfolio structure known as the Pandemic Stabilization and Recovery Fund (PSRF).  The PSRF is capitalized by €2 billion from existing ISIF assets with the overarching goal to complement other government-issued Covid policy initiatives. For example, the PSRF’s investment goals include to invest in large/medium enterprises with more than 250 employees or revenue greater than €50 million.  Additionally, they will invest in housing and regional development programs such as the Cork County Council joint venture program and the co-living facility, Eblana Avenue.

Additionally, Palestine Investment Fund (PIF),  an institution integral to the economy of the Authority, mobilized to develop credit relief programs for small and medium size enterprises whose business operations were severely disrupted by the pandemic.

This reinforces a predominant point: direct investment can maintain a long-term horizon for a least a portion of SWF’s portfolio, as long as there’s sufficient net assets to be able to bear liquidity risk. These attributes were prominent in the data sample and accentuated by the experiences of the funds included in the sample.