Sovereign wealth funds are seeking to raise funding via debt and equity markets as the coronavirus crisis and low commodity prices stretch state finances.
Many SWFs have traditionally relied on cash funnelled from their governments to support the bulk of their finances, but recent moves could indicate a shift.
Investment Corporation of Dubai this month sold $600 million in bonds, for example, while Turkey's sovereign investment fund was also planning a bond issue, but postponed the move due to market volatility.
Meanwhile, Indonesia is preparing to establish a sovereign wealth fund, with government capital and shares in state-owned companies complemented by private investment.
Djibouti plans to expand its newly launched fund to $1.5 billion assets under management over the next decade. While it has not said how it plans to do so, analysts anticipate participation from public and private investors.
While some funds did raise money via equity and debt markets before the pandemic, more are expected to turn to those options as COVID-19 exacts a heavy cost for governments while subdued economic activity weighs on returns of existing investments.
"It is definitely an increasing trend among sovereign development funds, perhaps in order to alleviate the debt at country level," noted Diego López, Global SWF's managing director, referring to those funds that had a mandate to help foster growth in their local economies.
Governments in several countries have drawn down savings from their funds in the months after the pandemic.
"Relatively low prices for commodities and large fiscal responses to the pandemic entail little-to-no government budget surplus to be contributed to the assets under management of sovereign wealth funds," said Stefano Lugo, associate professor of Finance at Utrecht University School of Economics.
"In some countries the government may even decide to withdraw from SWFs to pay for its fiscal stimulus plans. Using debt capital can partially counterbalance these trends."
Risks vs rewards
Raising money via equity markets was not uncommon before the pandemic, with the Russian Direct Investment Fund and India's National Investment and Infrastructure Fund among those turning to private investors to support investments at home.
Meanwhile Singapore's Temasek, Mubadala Investment Co of Abu Dhabi, Malaysia's Khazanah Nasional Bhd, Samruk Kazyna of Kazakhstan and Mumtalakat of Bahrain were among those funds that raised debt pre-pandemic, according to data from Global SWF.
The latest estimates for the amount of debt accumulated by SWFs are unclear.
Research from Lugo and his colleague Fabio Bertoni from 2016 found that they had outstanding debt of around $180 billion, a figure likely to have risen since then, said Lugo.
But issuing and buying debt is not without risk.
"The main comparative advantage of SWFs as investors is their ability to keep a very long-term view," said Lugo. "Debt-servicing obligations may partially undermine this advantage. I see this as th, e main risk of using debt capital for most SWFs."
Debt-raising can also create uncertainty about how likely it is that governments will guarantee the debt, something that can vary among countries.
For instance Fitch Ratings, which revised its rating outlook on Turkey Wealth Fund to negative last month, assesses the government as having a "strong" link to the fund and having an "incentive to provide extraordinary support" if needed.