Sovereign investors change tack: Invesco

Equities have overtaken bonds in the portfolios of sovereign wealth investors, according to Invesco which interviewed 126 central bank and sovereign wealth managers.

Asia Pacific sovereign wealth investors are eyeing alternative investments and picking active management strategies over passive, the study showed. However, Western sovereign wealth investors are moving towards passive strategies.

The average allocation to equities increased from 29% to 33% in the year ending 2017. The results are from Invesco's sixth global sovereign asset management study.

Invesco conducted face-to-face interviews with 126 individuals from sovereign wealth investors and central bank reserve managers across the globe representing $17 trillion of assets.

Invesco chief executive officer for Greater China, Southeast Asia and Korea, Terry Pan said that global sovereign investors have made clear their interest in equity exposure, although Asian sovereigns have less exposure than global peers.

"The return of market volatility this year has been anticipated by sovereign investors, and as such we expect them to continue diversifying into new asset classes including alternatives," Pan said.

"This year's study also revealed an increasing sophistication in the asset allocation of central banks, which are expanding beyond traditional fixed income assets and adopting some similar investing trends as their sovereign peers."

Half of Asia sovereign investors indicated a changing role for equities in their asset allocation.  47% of APAC investors expected to decrease equity holdings over the next few years (versus 37% among all respondents globally), and only 13% expect to increase exposure (versus 25% among global respondents).

Instead of equities, APAC sovereigns show a keen interest in private markets, specifically illiquid alternatives. 33% said they expected to increase exposure to alternative credit while 42% said they'd go deeper into real estate and private equity.

"Globally, most sovereigns will continue to allocate to private markets, focusing on opportunities in new regions instead of the traditional home bias. Large initiatives, such as the Belt and Road initiative in China, have made APAC the most attractive region for infrastructure, with 64% of sovereigns seeing this region as an opportunity, closely followed by infrastructure in emerging markets for 56% of investors," the report said.

Read more: InvescoAPACAsia PacificGreater ChinaTerry PanBeltKoreaRoadSoutheast Asia
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