In 2024, sovereign wealth funds (SWFs) and public pension funds (PPFs) managed $36 trillion in assets under management (AUM), with a compound annual growth rate (CAGR) of 6 per cent anticipated through 2030, according to BCG’s Global Principal Investors Report 2024.

SWFs’ and PPFs’ allocations to private markets have increased by an average of 10 per cent per year over the past decade, driven by considerations of portfolio diversification and the potential for higher returns. BCG estimates that these principal investors now control up to 70 per cent of all private AUM globally.

Bright spots

In the Indian context, given the robust economic outlook, new ‘bright spots’ for investments will emerge; however, identifying these bright spots prudently, while safeguarding against the latent risks they entail, will be the defining factor in the performance of principal investors, GPs and investment advisors, says Kanchan Samtani, APAC Leader – Corporate Finance & Strategy, BCG.

Over the past decade, approximately 70 per cent of all assets held by SWFs have been concentrated in the top 10 SWFs. In contrast, the top 10 PPFs have consistently held 40-45 per cent of all AUM held by PPFs.

Principal investors’ allocation to infrastructure increased by a CAGR of 14 per cent from 2014 through 2023—the second-highest growth rate across asset classes, according to BCG. This reflects a broader drive towards inflation protection. Heightened interest in AI and growing concern about climate change have also driven investments in data centres and green energy infrastructure, respectively. For example, GIC has grown its infrastructure portfolio five-fold since 2016, with new commitments of up to $20 billion each year.

Credit growth

Private credit allocations had the highest growth rate across asset classes (20 per cent CAGR), owing to private credit’s counter-cyclical nature and its potential to deliver attractive risk-adjusted returns in an environment where higher interest rates prevail.

To boost returns, reduce fees, and gain control over their portfolios, large principal investors are enhancing their co-investing and direct investing capabilities. Geopolitical tensions are prompting principal investors to redirect capital flow. More investments are taking place in emerging markets in Southeast Asia, Africa and West Asia.

Many principal investors, particularly SWFs, are prioritising investments that align with national development goals, climate initiatives and sustainable growth.

As the market landscape becomes more complex and competitive, the ability of principal investors and GPs to collaborate effectively will determine their success – whether through platform partnerships, joint ventures, or new investment vehicle structures, the report said.