Surging inflation and the Russian invasion of Ukraine have prompted sovereign investors to reposition their asset allocation, according to the latest Invesco Global Sovereign Asset Management Study.
Investors now favor private markets over fixed income and equities, and among geographies, prefer the US and the Asia Pacific over Europe.
More sovereign funds are pursuing digital assets, but they still prefer direct investment in the broader investment ecosystem to gain more exposure.
While the US dollar remains the main global reserve currency for the time being, funds’ allocations to the Chinese yuan are increasing continuously, noting that central banks are fighting persistent inflation by moving to non-traditional asset classes and government bonds.
Zainab Faisal Kufaishi, Head of the Middle East and Africa, and Senior Executive at Invesco said: “While there are some concerns about deal flow and supply driving valuations higher, private markets remain attractive to long-term investors in the region because they provide a long-duration play and shelter from volatility.”
Interest in private assets looks set to continue, with 50% of sovereign wealth funds in the Middle East citing an intention to increase allocations to private equity, 20% to real estate and 20% to infrastructure over the next 12 months, the report said.
In terms of geographies, while many sovereign investors in early 2020 saw good value in Europe, especially when compared to the US, the sentiment changed after Russia invaded Ukraine. Now, developed Europe and Emerging Europe are the geographies to which sovereign investors are most likely to decrease exposure.
According to Invesco’s study, 40% of Middle East sovereigns plan to reduce allocations to developed Europe and 30% to emerging Europe over the next 12 months.
It is noteworthy that the report is based on a study of the views of chief investment officers, heads of asset classes and senior portfolio strategists at sovereign wealth funds and central banks around the globe, who together manage $23 trillion in assets.
