Capital Ideas: A Year of “Living Dangerously”: The COVID Pandemic and Sovereign Wealth Funds Direct Investments 2019-2020

by: Garima Gupta

Chapter 1 in the Sovereign Wealth Fund Report 2020, “A Year of ‘Living Dangerously,'” explores the impact of the Covid-19 pandemic on SWF investment activity, specifically direct investments, which require significant time and tactile engagements to close. We find that investment trends during Covid point to the robustness and adaptability of sovereign investment programs to external shocks and the rapid onset of unanticipated disruption.

Our dataset spans from July 2019 to September 2020 and consist of 165 transactions across 16 funds. There is a resemblance of our dataset to prior studies concerning participation and investing geographies, but the data over time continue to evolve with emerging markets and technologies. The most active SWFs in terms of the deal count have been Temasek followed by GIC, Mubadala, and Qatar Investment Authority (QIA).

In terms of deal count across different geographies, the United States has perennially been the primary destination for SWF capital where it has attracted a disproportionate share of 30.91% of deals in the aggregate, valued at $11 billion. The U.S is followed by China (12.12%), and the United Kingdom (8.48%) with sector representation in biotechnology, internet, and related technologies. From an emerging economy perspective, India attracted significant SWF capital from funds in the Gulf and Singapore in the telecom and retail sectors. In contrast, more capital-constrained regions such as Sub-Saharan Africa and Central America have not been able to attract much SWF capital.

In such unprecedented times, SWFs have acted consciously to mitigate the crisis impact by investing heavily into domestic markets and the pharma industry. For instance, the Russian Direct Investment Fund became actively involved in various dimensions of the development, production, and distribution of Russia’s vaccine entrant, Sputnik V. The investment activity of Turkey Wealth Fund (TWF) focused on the domestic telecom sector and financial services. The most concentrated response has been by Ireland Strategic Investment Fund which created a Pandemic Stabilization and Recovery Fund which has committed support towards aviation, hospitality, and SMEs.

Ultimately, we conclude that direct investments by SWFs have capacity to bear significant liquidity risk as well as maintain a long-term horizon for a least a portion of their portfolio. Sovereigns have shown resilience and adaptability during this economic contraction.

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