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Impact Investing

IPE special report May 2018

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SWFs still allocating new money to alternatives, emerging markets

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  • Manhattan, New York

Sovereign wealth funds are stepping up their investment in alternatives as well as in emerging markets, according to a new survey.

Invesco’s latest annual Global Sovereign Asset Management study showed that, in 2013, alternative investments were still the asset classes receiving the highest new asset allocations from sovereign investor portfolios, continuing the trend from the year before.

It said 51% of sovereign investors raised their new exposure to real estate in 2013, and 28% lifted their new investment to private equity, relative to their whole portfolio.

Invesco said it found that all sovereign investors expected to increase new allocations across all major alternative asset classes – property, private equity, infrastructure, hedge funds and commodities – in 2014 compared with their 2013 asset placements.

Nick Tolchard, co-chair of Invesco’s global sovereign group and head of Invesco Middle East, said: “Given alternatives underperformed during the period in which their allocations increased, it is clear a strategic asset allocation strategy is driving sovereign investors to alternatives, rather than tactical allocation.”

He said the expected net increase in new funding this year was another key factor explaining the preference for alternatives, driven by increasing country surpluses and strong support from governments for their sovereign funds. 

Also, many sovereign investors are still underweight alternatives compared with their strategic asset allocation targets, having increased their target allocations to these asset classes in the last five years, Invesco said. 

It said the study indicated sovereign investors’ new allocations to Latin America, Africa, China, India and emerging Asia all increased in 2013, and were expected to rise again in 2014.

However, political instability was behind decreased weightings to Central Eastern Europe and Russia last year, it said, and exposure to these areas was expected to remain flat this year.

The survey was carried out among more than 50 individual sovereign investors around the world representing $5.7trn (€4.2trn) of assets.

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