Mubadala, Adia, and the world’s biggest sovereign funds have a new playbook: fewer stocks, more data centers

The world’s biggest sovereign wealth funds are pulling money out of listed equities and rotating hard into private markets — and Gulf names are leading the charge. Abu Dhabi’s Mubadala already has 59% of its assets in private equity, infrastructure and real estate, while Singapore’s Temasek holds 49% of its portfolio in unlisted assets.

This trend is only going to accelerate, according to Invesco’s annual sovereign wealth study (pdf), which covered 90 funds with combined AUM of USD 17.2 tn. The study showed a net 17% of SWFs plan to cut listed equity exposure this year — a sharp reversal from recent years — and some 28-35% plan to add to private equity, private credit, and infrastructure.

The culprit is a toxic backdrop of inflation, geopolitical tensions, and equity market concentration. The top 10 stocks in the S&P 500 now represent 38% of the index — double their weight a decade ago — and large passive allocations have quietly become leveraged wagers on a handful of US megacap tech names. Several funds told Invesco they had started asking whether the diversification they assumed from broad-market exposure was actually present. The bond-equity relationship that traditionally cushioned public market drawdowns has also broken down since the 2021-2022 inflation shock, removing the other leg of the classic resilient portfolio.

AI is both the problem and the catalyst. The same theme driving index concentration is generating the private market dealflow. The capital requirements for the AI build-out — from data centers to energy systems — are vast and sitting mostly outside listed markets. One Middle Eastern fund told Invesco the AI wave is currently best captured in private credit and infrastructure. The average infrastructure allocation across the SWF sample has nearly doubled to 9% since 2022. Gulf funds, with their scale and governance flexibility, are better placed than most to keep rotating.

Case in point: Abu Dhabi Investment Authority (Adia) recently backed Rajasthan-based precision equipment manufacturer KRN Heat Exchanger’s qualified institutional placement, a firm positioned to benefit from rising demand for cooling equipment linked to data centers, manufacturing expansion, and climate-control infrastructure. In addition, the Abu Dhabi sovereign wealth fund previously invested USD 500 mn in AlphaGen, a US power infrastructure portfolio of over 11 GW specifically structured to support data centers. It also acquired a stake in data center developers Landmark Dividend and Vantage Data Centers. Meanwhile, Mubadala backed Yondr, and Saudi Arabia’s Public Investment Fund launched Humain build across the AI value chain.

MARKETS THIS MORNING-

Asian equities are looking at moderate gains in early trading this morning, echoing gains felt across Wall Street a day earlier in a tech-fueled rally. Japan’s Nikkei is up 0.5%, putting it on track for its best quarter ever — “as institutional investors are ‌expected ⁠to adjust their portfolios ahead of the end of the quarter today, volatile price movements are possible,” Sony Financial Group analysts said in a note.

THE CLOSING BELL-

The EGX30 fell 1.0% at yesterday’s close on turnover of EGP 6.4 bn (26.2% below the 90-day average). International investors were the sole net sellers. The index is up 19.1% YTD.

In the green: Edita (+4.8%), Raya Holding (+2.5%), and Orascom Construction (+2.0%).

In the red: Eastern Company (-2.9%), CIB (-2.3%), and Juhayna (-1.6%).