The Invesco Global Sovereign Asset Management Study, now in its fourth year, revealed that over two thirds (69%) of sovereign investors indicated growth in international real estate while 61% cited growth in international private equity in the last 12 months relative to their total portfolio.
Sovereign investors, were classified into four profile types with particular investment objectives, ranging from investment only (for example Middle East future generation funds), investment and liability (mainly Western pension funds), liquidity (for example Latin America or Africa managed by government or central banks), and development (commercially minded state investment partner strong in Asia).
The total amount of assets held by all the institutions was $4.7tn when the study was conducted in mid to late Spring of this year.
Western investment sovereigns currently hold the most alternative assets with 21% of all portfolio assets allocated to alternatives while those across Asia, the Middle East and emerging markets have much lower allocations.
But the greatest increase in new allocations in the last 12 months was among the Middle East (69% of sovereigns cited an increase in allocations), Asia (54%) and Emerging Markets (60%).
Significantly, 86% of pure investment funds – seeking diversification – have decreased their allocation to international equities and 57% in international bonds, while 75% have experienced a net increase in international infrastructure and 33% in international commodities.
Nick Tolchard, head of Invesco Middle East, said: “The findings indicate the outlook for investment providers specialising in alternatives could be positive. While Asia and Middle East sovereigns have relatively modest allocations to alternatives compared to Western sovereigns, we believe a shift is starting as they look to adopt the investment models of the West. When you consider that the vast majority of sovereign investor assets are managed by sovereigns in Asia and the Middle East, the growth in sovereign alternative investments could be substantial.”
In terms of geographical changes in asset allocation, a key trend was increasingly looking at investing in emerging markets such as Africa, China and Latin America at the expense of continental Europe and the UK.
This appeared to be a strategic long term move which reflected the need for diversification and the GDP growth prospects of the emerging markets.
Tolchard concluded: “Understanding the size and scope of geographic allocations by sovereign investors is important and can have a meaningful impact on economic growth, capital markets and the asset management community.
