5 obstacles facing global sovereign

The Sovereign Wealth Fund (SWF) predicted that the global investment volume of sovereign funds will reach $17.7 trillion by 2030, compared to $10.5 trillion in 2021.

The sovereign funds have gained great importance in the economies of many countries around the world over many decades, but they are facing, during the current period, several challenges prevent it from performing its role as a haven during crises and as a preserver of financial surpluses for development investments in the long term.

5 obstacles

The most prominent 5 obstacles and challenges facing global sovereign funds due to the economic crises of many countries during the past years.

- The first challenge for global sovereign funds is the difficulty of investing in long-term assets during crises, as there is an urgent need for the availability of financial liquidity that allows payments to be made in the short term, and then the ability to invest in long-term investments decreases.

- The second challenge, the decline in net financial flows at the expense of expenses, a situation that investors may not accept; Those who refuse to invest in markets where the chances of increasing profits are shrinking.

- The third challenge is the difficulties of avoiding government interventions that prevent these funds from achieving independence, which leads to a decline in their ability to achieve financial and economic effectiveness.

- absence of governance standards; Governance challenges, regulations and red tape, particularly in some emerging markets and Africa, are a major impediment to the flow of SWF capital into long-term sustainable development sectors.

- Decreased global liquidity in times of geopolitical crisis, as the Russian-Ukrainian crisis has reduced global liquidity, especially for developing countries; Interest rates and bond yields rose, this prompted a decrease in the investments of sovereign funds in developing countries.

The "Interregional" Center confirmed that despite these challenges and obstacles, sovereign funds maintain 7 important roles for the benefit of countries that own these funds, most notably:

- Creating a capital stock to preserve and develop the national wealth

- Develop a broad base for economic growth

- Financing social commitments

- Doubling investments

- encouraging local projects

- contributing to sustainable development

- providing attractive commercial returns to investors, and increasing public welfare in countries.

The Abu Dhabi Investment Authority ranks first in the Arab world and third among global sovereign funds, with an investment volume of about $829 billion.