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Economists generally speak candidly about sovereign wealth funds (SWFs). Last year, a paper from the University of Oklahoma, authored by Bill Megginson, Asif Malik, and Xin Zhou, hailed the rise of global SWF investment as one of the most significant financial developments.

SWFs and public pension funds, as reported by GlobalSWF, managed over $34tn in assets globally by the end of 2023. They serve as vital sources of capital for emerging economies, especially as they face scrutiny from Western nations.

The investment strategies of these sovereign entities hold immense implications for the developing world. In 2023, over $65bn flowed from state-owned funds into emerging markets, marking a 17.3% increase from 2022.

Diego Lopez, CEO of GlobalSWF, identifies two driving forces behind the renewed interest in emerging markets. Firstly, state-backed funds are deploying more capital domestically in countries like Saudi Arabia, Turkey, and the UAE. Secondly, Middle Eastern and Asian investors are keen on better investment prospects in countries like India, Brazil, and Indonesia.

The surge in state-backed investments in China, which rose by 333% to $8.3bn in 2023, contrasts with the overall decline in foreign direct investment (FDI).

The top 10 most active funds, including Saudi’s Public Investment Fund (PIF), significantly influenced the $205.1bn deployed in 2023. PIF alone increased its investment by 33% from 2022.

Singapore’s GIC, once the world’s most active sovereign investor, doubled its investments in developing economies in 2023. Other entities like Temasek, QIA, and ADQ also increased their capital deployment in emerging markets.

GlobalSWF’s data provides transparency to a segment of global finance that often prefers secrecy, especially in undemocratic countries.

Victoria Barbary, from the International Forum of Sovereign Wealth Funds, highlights the perception of emerging markets as less risky for many SWFs. Geopolitics also influences investment decisions, with increased scrutiny in Western countries affecting investment patterns.

Investment in Europe and developed Asia-Pacific regions decreased, while North America remained relatively resilient. GlobalSWF predicts total assets of state-backed investors will hit $50tn by 2030.

The World Bank urges a significant investment surge to bolster low growth forecasts in developing countries. As SWFs increasingly shift towards emerging markets, economic developers and corporate leaders should closely monitor these developments.

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