Gulf sovereign wealth funds among world’s least transparent

Some of the Gulf’s largest sovereign wealth funds (SWF) are the world’s worst performers regarding governance and resilience, according to a Global SWF study of 100 sovereign wealth and pension funds.

For investors, uncertainty and a lack of trust in the region’s leading funds has grown amid insufficient disclosures and a lack of transparency.

SWFs, which are investment funds owned or influenced by a sovereign state, obtain their capital through a variety of channels, including stabilisation funds, central banks, public pension funds, government enterprises, and foreign currency operations.

The Global SWF study singled out three of the Gulf’s largest funds, which “seem to be getting worse at inspiring trust”.

The Abu Dhabi Investment Authority (ADIA) has an “increasingly opaque annual report” that no longer reveals details like the fund’s relationship with the government.

The Qatar Investment Authority’s (QIA) website no longer includes an organisational chart, and its governance section is less comprehensive than before.

Meanwhile, the Kuwait Investment Authority (KIA) “provides less and less clarity around its two funds and how liquidity is affecting them”.

Uncertainty around wealth funds developed further after “significant withdrawals” from some entities in the region over the past year battling Covid-19 and falling oil prices.

“Most were found to be swimming naked,” the report stated.

Introduced by Global SWF in 2020, each entity is rated according to a GSR scoreboard composed of ten elements related to governance, ten on sustainability, and five on resilience. The results are converted into a percentage scale for each of the funds.

For the second year running, the only one to score positively on all elements was Australia’s Future Fund, receiving 100 percent.

Norges Bank Investment Management (NBIM) and New Zealand’s NZ Super, and Canada’s CDPQ followed in a three-way tie for second place with a 96 percent rating.

Singapore’s Temasek was Asia’s best ranked SWF at 92 percent.

Only four funds in the Middle East exceeded the 50 percent mark: UAE SWFs Mubadala Investment Co. and DP World, the Libyan Investment Authority (LIA), and Bahrain’s Mumtalakat.

Compared to 2020, LIA and Angola’s FSDEA are among the funds to have taken “positive steps to solve very difficult situations”.

39 funds failed the GSR test and those which underperformed were the result of a number of red flags, from CEOs being abruptly sacked to managers being prosecuted for misuse of public funds.

Gulf SWFs global footprint

According to SWF Institute’s rankings, Norway’s NBIM is the world’s biggest with $1.28 trillion in total assets.

China Investment Corporation ($1.04 trillion), KIA (692.9 billion), ADIA ($649 billion), and Hong Kong Monetary Authority Investment Portfolio ($580.5 billion) round out the top five.

Overall, Gulf SWFs account for seven of the top twenty-five.

It is no surprise then that Gulf SWFs are among the largest capital market investors, and own 40 percent of all SWF assets.

These funds have allowed Gulf states to diversify their economies by channeling resources drawn from their vast hydrocarbon wealth into global investments in real estate, financial services, energy and infrastructure.

Saudi Arabia’s Public Investment Fund (PIF) led the charge last year, capitalising on opportunities to scoop up discounted US and European blue-chip equities in the wake of the pandemic.

Based on a Fitch Ratings’ 2020 report, Emirati, Qatari and Kuwaiti SWFs are believed to have “underpinned the resilience” of their sovereign ratings despite the pandemic and low oil prices.