Invesco’s 2015 Global Sovereign Asset Management Study also found the low oil price was having a bigger impact on flows into North American funds than on those in the Middle East, which are large enough to weather the short term volatility.
“In the Middle East the funds are well established, larger and many were caught out during the financial crisis and so have put in place more governance and risk management policies, including allowing for oil price to fluctuate,” said Nick Tolchard, chair of Invesco’s Global Sovereign Group and head of Invesco Middle East.
“North American sovereign investors, who have emerged from state surpluses driven by high commodity prices, were the most frequent to say that they expected new funding to be negatively affected in the short term.”
The Invesco survey found 80% of North American sovereign wealth funds forecast a decline in funding this year, with the remaining 20% expecting it to remain the same.
"Low investment returns... was extending the push into alternatives."
However, the survey revealed a world a significant number of oil-funded sovereign wealth funds expected withdrawals if the oil price remains below US$40 per barrel for two years.
The survey was based on responses from 18 funds in Western developed nations, of which five were in the US; 17 funds in Asia, 13 in the Middle East, and 11 in the emerging markets of Africa, Latin America and Central Asia. The sovereign investors represented about $7.09trn of assets.
Alternatives find favour
Tolchard said low investment returns in traditional asset markets was extending the push into alternatives by the sovereign funds who were also increasingly operating more globally and more like asset managers in order to get closer to the limited supply of good investment projects.
“This move towards risk assets is more about the periphery of the portfolio being used as separate alpha drivers,” he said.
The survey found sovereign portfolios are overweight to emerging market infrastructure, relative to emerging markets generally, while total sovereign portfolios are overweight to developed market real estate compared to developed markets generally.
“However, for both infrastructure and real estate investments, the biggest challenge for sovereign investors is sourcing deals. This is hardest in infrastructure, and as a result, this year’s study highlights accelerated growth in collaboration between sovereign investors to source these deals,” Invesco said.
Tolchard said the drive for infrastructure project shad also seen the US replace the United Kingdom as the most attractive market from a sovereign investor perspective in general.
In the US there a sense that with ‘Build America initiative’ they are more keen to interact with sovereign investors than they were,” he said.
