What Happened in Muscat? Charting the Future of Sovereign-Owned Funds

An exclusive op-ed from Udaibir Das, IFSWF Special Advisor

This article represents the views of the author, and are not those of IFSWF.

Sixteen years ago, state-appointed professionals created the International Forum of Sovereign Wealth Funds (IFSWF), a platform for managing public financial assets responsibly while fostering collaboration and knowledge exchange. Since its inception in 2008, the IFSWF has evolved, adapting to changing policies, markets, and stakeholder expectations while building a collaborative community of sovereign asset managers.

The 2024 Annual Meeting in Muscat, Oman, marked a pivotal moment for IFSWF. Hosted by Oman Investment Authority under the theme "Embracing Disruption and Searching for Resilient Futures," the gathering provided a platform for open dialogue and collaboration, aptly termed the "Muscat Dialogue."

Over three days, the Muscat Dialogue provided a platform for sovereign wealth funds and other state-owned investors to discuss various policy, investment, and operational issues. This open dialogue and collaboration, which included panels, workshops, and informal discussions, were instrumental in what could guide responsible financial management in managing state-owned financial assets in a complex global macro-financial landscape.

Muscat also marked a milestone in the IFSWF's governance. An expanded board will steer the organisation. With its enhanced perspectives, the new board will strengthen the Forum's ability to address new challenges and demands of IFSWF members, particularly those from developing economies.

The Changing Role of Sovereign Wealth Funds

Traditionally, sovereign wealth funds were established as stabilisers safeguarding national wealth. Some were explicitly tasked to help build macroeconomic resilience during growth volatility.

However, discussions in Muscat highlighted that these institutions are increasingly being tasked with taking on a broader domestic role against a backdrop of pressing global challenges such as climate change, supply chain disruptions, geoeconomic fragmentation, and rapid technological advancements. As custodians of public monies and investors, governments increasingly view their funds as macroeconomic instruments for deploying capital, generating returns, and shaping and supporting structural transitions in their domestic economies.

A Broader Policy Role

Sovereign wealth funds are components of a country's macroeconomic strategy alongside other sovereign financial entities, such as central banks, public pension funds, and development-focused funds.

Collectively, these institutions form a vital financial fiscal buffer for nations, helping them absorb shocks, stabilise economies, and achieve long-term objectives. Their integration into broader policy frameworks demonstrates the increasing recognition of their relevance in managing sovereign wealth on behalf of the people.

However, changing expectations of their mandate and purpose require IFSWF members to adhere to the highest governance and management standards. As custodians of national wealth, they must balance fulfilling fiduciary responsibilities and addressing broader policy goals such as sustainability and equitable growth.

The discussions in Muscat underscored the need for more robust transparency and accountability to maintain public trust and ensure effective decision-making.

Key Discussions

Muscat offered a platform for deep discussions on the evolving mandates of SWFs, with four major themes emerging:

1. Investing in a Dynamic Policy Environment: Navigating ever-changing regulatory landscapes, geopolitical tensions, and macroeconomic shocks requires agility. Sovereign investors must balance addressing immediate challenges and maintaining a long-term vision. Their ability to adapt and evolve in the face of these pressures makes them indispensable players in national and global economic policy frameworks.
2. Financing the Energy Transition: Sovereign wealth funds are increasingly taking a leadership role in the global energy transition, with renewable energy emerging as a focus. While these funds alone cannot resolve the climate crisis, their ability to mobilise private capital and de-risk investments in recipient countries is transformative. By championing robust governance, transparency, and integrity in their investment destinations, sovereign wealth funds can catalyse climate action and set standards for responsible investing globally.
3. The Promise and Pitfalls of AI: Artificial intelligence offers sovereign investors unprecedented opportunities to enhance and streamline investment processes and portfolio management. However, concerns such as data biases, regulatory uncertainties, and the cultural shifts needed to integrate AI effectively were hotly debated. Participants emphasised the importance of well-defined, high-conviction AI use cases to ensure meaningful adoption while avoiding potential risks.
4. Reimagining Asset Allocation: Traditional asset allocation models must be revised to handle economic uncertainty better in today's volatile environment. The pandemic and subsequent inflationary pressures highlighted the limitations of models that failed to anticipate systemic shifts. Discussions in Muscat called for adaptive strategies that balance liquidity needs with long-term growth, ensuring resilience in a constantly evolving financial landscape.

The Fiduciary Role of SWFs: Balancing Goals

Sovereign funds' core fiduciary responsibility—safeguarding and growing national wealth for future generations—remains central to their purpose. However, as these funds start considering sustainability, social impact, and economic diversification, they must navigate tensions between financial returns and broader objectives. This balancing act is crucial for maintaining credibility and public trust. Success lies in maintaining clarity of mandates, governance standards, and ethical decision-making while achieving broader societal and economic outcomes.

The Role of Sovereign Wealth Funds in a Sustainable Future

Muscat underscored the unique capacity of IFSWF members to influence the global transition to a low-carbon economy. Their long-term horizons and ability to catalyse investments in clean energy and emerging infrastructure position them as players in the fight against climate change. However, participants cautioned against over-relying on the funds for solutions, emphasising that complementary efforts from fiscal policies, multilateral development banks, and private sector actors are essential to achieving systemic climate resilience.

Looking Ahead: Six Priorities from Muscat

The Muscat Dialogue concluded with six actionable priorities for IFSWF members:

1. Enhance Governance: Strengthen transparency and accountability to build trust and ensure effective decision-making.
2. Leverage Technology: Cautious AI and digital tools integration into investment processes while addressing associated risks.
3. Expand Partnerships: To amplify the cross-border impact of investments and foster creative collaboration with development banks, multilateral organisations, and private investors.
4. Lead in Renewable Energy: Expand green energy infrastructure and technology investments to catalyse the energy transition.
5. Modernise Asset Allocation: Develop adaptive strategies to navigate global financial shifts and evolving risks.
6. Prioritise Social Impact: Sovereign wealth funds must continue safeguarding national wealth for future generations while addressing broader social objectives.

These priorities reflect a shared commitment to navigating challenges and seizing opportunities in an evolving global landscape.

Looking Ahead to Abu Dhabi

The next IFSWF Annual Meeting in Abu Dhabi in 2025 will serve as a benchmark for assessing the progress made on the priorities outlined in Muscat. The "Abu Dhabi Dialogue" will provide an opportunity to evaluate how sovereign investors have further adapted to the shifting global economic and geopolitical landscape.

Until then, Muscat's insights will continue to shape the strategies of sovereign-owned funds worldwide, ensuring their continued relevance as instruments of stability, innovation, and sustainability in an unclear future.