Sovereign investors risk appetite rising says Invesco Study

Sovereign investors are set to put more money into emerging market assets and alternatives, according to the second annual Invesco Global Sovereign Asset Management Study.

The study, which has been conducted amongst more than 50 sovereign investors globally, representing USD5.7trn, highlighted that the flow of sovereign assets to emerging countries and alternatives increased, despite the fact that both asset classes underperformed during the last year. 

According to the study 51% of sovereign investors increased new exposure to real estate in 2013 and 29% to private equity, relative to the total portfolio. Within alternatives, global infrastructure was particularly popular, with 47% of sovereign investors citing an increase in exposure to new global infrastructure in 2013 relative to their portfolio on a net respondent view basis, compared to 22% in 2012.

It also revealed that almost half (46%) of sovereign investors expect to see an increase in new funding in 2014 beyond the levels seen in 2013, with clear implications on global capital flow.

Commenting on the results, Nick Tolchard, co-chair of Invesco’s Global Sovereign Group & Head of Invesco Middle East, said: “Given alternatives underperformed during the period in which their allocations increased, it is clear that a strategic asset allocation strategy is driving sovereign investors to alternatives, rather than tactical allocation.”

“The expected net increase in new funding this year is another key factor that explains this preference for alternatives, driven by increasing country surpluses and strong support from governments for their sovereign funds. However, the main reason is that many sovereign investors, especially those with assets in excess of US$50 billion, are seeing it take time to deploy assets in alternatives and emerging markets and are yet to reach the asset allocation targets set five years ago” he added.

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