Many sovereign wealth funds (SWFs) and other institutional investors have kept a high exposure to risky assets during the current coronavirus pandemic, according to the International Forum of Sovereign Wealth Funds (IFSWF), a global network of sovereign wealth funds from nearly 40 countries, and State Street Corporation.
The duo has conducted a research study that shows that these investors have maintained this position even when they were already either overweight cash or underweight equities before March 2020 when the economic impact of the pandemic became more apparent.
Consequently, SWF portfolios have proved more resilient to the market rout in March and April 2020 than widely supposed, it concluded.
In fact, the IFSWF and State Street research suggested that institutional investors, including SWFs, did not display widespread risk aversion in a falling market. Instead, the research showed they selectively took on risk – for example, selling fixed income securities to buy equities – to rebalance their portfolio and retain their asset-class allocations.
Duncan Bonfield, chief executive officer of IFSWF, said, “Our research suggests that SWFs have not undertaken large-scale liquidations to provide liquidity for governments as widely speculated. In fact, only two of the 10 IFSWF members surveyed for this research said that they had experienced a call on their assets since the beginning of March.”
He added that iinvestors had been able to use their cash position to satisfy private equity managers’ capital calls and “invest in the long-term interests of their owners at a time of great uncertainty”.
Neill Clark, head of State Street Associates EMEA at State Street, said the research findings represented the capital flows and behaviour across a broad set of global institutional investors and suggested that long-term investors maintained “institutional discipline” during the market volatility seen in March and April 2020.
”We did not observe such widespread risk aversion during this period relative to previous crises and signs suggest there has been a stabilisation in aggregate capital flows observed across asset classes during April,” he added.
The full research report, Pandemic, No Panic: Evidence from Institutional Investor Flows, is available on the IFSWF website