To be sure, sovereign wealth funds (“SWF’s”) have gotten their test so far, in 2020. As the COVID-19 pandemic has decimated the global economy, country economic downturns have created possible calls for draws on SWF reserves. As well, the economic troubles have also hit the investment returns of many of these SWF’s, reducing the projected (hoped for) enhancement of portfolio asset values. Such a time.
Norway’s GPFG has reported a negative return (loss) of -3.4% for the first half of 2020, a loss of $21.3 billion. Bahrain’s will draw $450 million from its FGRF sovereign fund to provide funds for the state’s general budget. New Zealand’s Superannuation Fund managed to achieve a 1.73% return for the year ending June 30, 2020, although since the fund’s inception it has returned an impressive 9.63% per annum. Iran is using its SWF funds to stabilize Tehran stock exchange.
Generally speaking, these SWF’s were formed over the years to capture current wealth for use by future generations. A great many of the funds were literal monetization transfer methods, where a portion of national oil and gas revenue (wealth) has been transferred into a country SWF. Investment from any particular SWF have first been intended to build these reserves for the benefit of those to come.
For 2020, the existence of these SWF’s has been a helpful resource to provide funds at an unusually critical time, to stabilize national economies. Tapping into held sovereign funds for “rainy day” purposes was always a possibility, but not a welcomed eventuality. Norway will withdraw a record $37.72 billion from its SWF to address Pandemic impacts to the nation’s budget, and intends asset sales as part of this withdrawal. Indeed, sovereign wealth funds have had their test in 2020.
Looking forward to the balance of 2020, we shall see how the 2020 pandemic impacts new SWF formations, in Indonesia, Oman, Israel, Mozambique, and South Africa, among other nations. Within the U.S. and Canada, our many indigenous sovereign Native / First Nations are also facing particular financial stress this year, with operating asset revenues significantly down and available reserves at risk. In discussions about SWF’s, these sovereign Native / First Nation tribes and pueblos are often neglected.
SWF formation has seen significant activity over the past decade, with just under 100 new national SWF’s getting their start.