Sovereign investors remain relatively confident in the face of “challenging” market conditions, but are investing in the US and frontier markets, away from Brazil, Russia and China, according to Invesco’s latest annual study of the investment behaviour of the world’s key sovereign wealth funds and central banks.
The US now ranks ahead of the UK as an investment jurisdiction of choice, the fourth annual Invesco Global Sovereign Asset Management Study reveals.
In a summary of the report’s findings, Invesco says its face-to-face interviews of 77 individual sovereign investors and reserve managers across the globe, representing 66% of sovereign assets and 25% of foreign reserves, found “a strong preference for the US above other geographical regions, and an increased appetite for real estate investment”, which it noted was driving allocations towards the “alternatives” side of the investment spectrum.
Alex Millar, head of EMEA sovereigns, Middle East and Africa institutional sales at Invesco said many sovereign investors seem now to be “comfortable” operating in an environment with limited new funding.
“Some have ceded assets to governments without cancelling long-term investments, while others have not been called upon at all for withdrawals over the last 12 months,” he said.
“Many of these institutions appear confident in their funding outlook, and are increasing the importance of their investment objectives relative to their short-term liquidity needs.”
Other findings of the report:
* While the challenging macro-economic environment, driven by the sustained low oil price, has impacted on sovereign investment performance, sovereign investors “remain better prepared in terms of investment capability and governance” to deal with the headwinds
* With respect to sovereign inflows, on average new funding was found to account for for 7% of total invested assets, while the average sovereign investor withdrew or cancelled only 3% of assets
* Time horizons for investing are lengthening as sovereign investors manage the market challenges; over the past four years they have risen to their current 7.6 years from 6.4 years, “amid continued interest in the diversification benefits and illiquidity premiums offered via alternatives”