Bullish sovereign funds will look to emerging markets, says survey

About 54 per cent of Middle East sovereign investors will increase their funding levels this year, driven by strong country surpluses and government support.

Middle East sovereign wealth funds will remain focused on emerging markets as they seek long term growth from India, Africa and Latin America, a new study has found.

Alternative investments, including property and private equity will also figure largely, according to the Invesco Global Sovereign Asset Management Study from the US-based investment management company.

About 54 per cent of Middle East sovereign investors, which includes sovereign wealth funds (SWFs), state pension funds, central banks and government ministries, will increase their funding levels this year, driven by strong country surpluses and government support.

About half of them increased their property allocations last year, and 29 per cent increased private equity holdings. This year, the survey found that founds were bullish on all major alternative asset classes – property, private equity, infrastructure, hedge funds and commodities.

The Middle East sovereign investors are expected to increase their allocations in global private equity by 83 per cent this year from 60 per cent last year, and global property by 100 per cent from 67 per cent.

The study is based on the responses of 52 sovereign investors across the globe, controlling US$5.7 trillion in assets. Overall, SWFs are estimated to hold $30tn in assets.

“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,” said Nick Tolchard, the head of Invesco Middle East and the co-chair of Invesco’s Global Sovereign Group.

“The main reason is that many sovereign investors, especially those with assets in excess of $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.”

Globally the top SWFs include Norway’s government pension fund, Abu Dhabi Investment Authority (Adia), Saudi Arabia’s Sama Foreign Holdings, China Investment Corporation and Kuwait Investment Authority.

“Middle East sovereigns are decreasing their home-market bias, along with others, as there is more confidence in global markets, and their funding levels overall increase,” Mr Tolchard said.

About one third of western sovereign investors are expected to decrease allocations to the Middle East this year.

“There is no one reason for the decrease from Western funds, but as markets in the region broaden with more specific investment opportunities available, coupled with increased transparency, then the Middle East will increase in accessibility,” said Mr Tolchard.

Of the Middle East sovereign investors about two thirds are expected to increase allocations to Latin America this year, up from 40 per cent in the last year.

Half of them will increase funds in Africa, up from 40 per cent, and 60 per cent to India, up from 43 per cent last year.

Allocations to Eastern Europe are expected to remain flat, after declining last year.

On Friday, Adia pared its stake in the Chicago-based property investment trust General Group Properties – shedding shares worth $7.1 million. Adia is the world’s second largest SWF controlling, $773bn in assets, according to the US-based Sovereign Wealth Fund Institute.

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