Thinking Forward: Sovereign Wealth Funds Leveraging Strategic Communications with Diego Lopez
While the functionality and endgame of sovereign wealth funds (SWFs) remain largely the same in 2022 as ever—driving economic diversification and ensuring long-term, sustainable wealth for future generations—the varied approaches to realizing these objectives have become quite diverse. For some more traditional models, fears of a looming recession and persistent uncertainties around a global economy recovering from a pandemic mean keeping an eye out for safer investments in conservative debt instruments or opportunities in established, developed markets. However, taking a look back at this past year, it’s quite clear that other SWFs are making some of their biggest and boldest bets yet—investing in industries hit hard by the pandemic, tech and clean energy startups, healthcare and biotech, and a growing appetite for emerging markets in a higher-risk, yet higher reward approach.
Not surprisingly, investments—particularly in foreign markets—are invariably perceived as inherently political and therefore as also carrying greater risk. Such strategies require both a nuanced understanding of local regulatory matters and policymaking, and a smart strategic communications plan to navigate these challenges while explaining the rationale to varied (and diverse) stakeholders.
To dive deeper into this trend, KARV spoke with Diego Lopez, Managing Director of Global SWF, a financial boutique and data specialist focused on Sovereign Wealth Funds and Public Pension Funds. He discussed how SWFs around the world are becoming more sophisticated in leveraging communications to important external audiences as a critical component of their investment strategy.
Q1: How do you see the communications strategies vary between SWFs around the globe?
SWFs are generally becoming more open and collaborative, and their communications departments have evolved accordingly. Some of them have realized that the best approach to avoid miscommunication and misunderstanding of their activities and investment strategy is to be proactive in presenting their investment philosophy and rationale for specific portfolio moves via press releases, social media posts and direct engagement with the media.
Q2: What SWFs are leading the way in terms of utilizing communications to achieve their objectives?
Singaporean SWFs have been very effective at engaging with young audiences, primarily through smart content creation across social media platforms like Instagram or TikTok. They regularly publish posts on the corporate culture at their organization, key insights from their leadership, and tools to help understand how their investments benefit the people of Singapore. Critically, they create impactful infographics, which are useful in conveying large amounts of data in an easily digestible (and shareable) format. Similarly, in the UAE, Mubadala has one of the largest communications teams that is consistently very active around raising the profile of key investments within its portfolio, showcasing its high-profile sponsorships across the globe, and also regularly publishing content in both English and Arabic.
Q3: How important is it for SWFs to communicate their strategies to various stakeholders in international markets where they invest?
Increasingly so – the line between asset owners and asset managers is getting blurrier and some SWFs are now actively raising both debt and third-party equity. In this context, having open communication policies has become key in getting their messages across. Furthermore, some SWFs leverage either in-house communications teams or external agencies to identify the right opportunities for media engagement, thought leadership roles to position executives as true pioneers in their respective investment fields or ESG initiatives to develop and implement.
Q4: What SWFs were able to most successfully navigate the numerous challenges that the pandemic presented? How so?
SWFs are a very heterogeneous group of investors and they were affected by Covid-19 very differently, according to their mission and investment restrictions. A group of them opted to withdraw large amounts of capital, such as the Government of Singapore Investment Corporation, the Abu Dhabi Investment Authority and Norway’s Norges Bank Investment Management. Another group, comprised of Singapore’s Temasek, the Kuwait Investment Authority and the Qatar Investment Authority, were used to bail out some of the domestic assets. Finally, a third group, primarily the Public Investment Fund of Saudi Arabia and the Abu Dhabi Developmental Holding Company, were very active in seeking distressed assets and opportunities during the pandemic, with investments in live entertainment, the cruise ship industry and tech. The Public Investment Fund also announced in 2021 investments of $1 bln to support a number of markets in Africa in their post-pandemic recovery.
Q5: What are some of the major trends you are seeing with SWFs as we move into 2023?
Inflation, high oil prices and the drop in financial markets have created a whole new dynamic in 2022 that will likely continue into next year. The activity in VC, which had boomed during 2021, has lost some momentum, to the benefit of infrastructure and private credit, given some funds have the pressure of deploying capital very quickly. This has brought back the mega-deals: of the largest 30 investments by Sovereign Funds in history, 16 have happened in the past 12 months. The other effect is a re-assessment of allocations to hedge funds, given the short-term volatility.