Sovereign investors, who now manage around $33 trillion in assets, have also seen a rapid increase in allocations to private markets, although this could start to slow as fixed income returns to Greece, according to the Invesco Global study report. Sovereign Asset Management.
“Over the past decade, sovereign investors have been investing with full steam ahead thanks to the secular bull market that emerged from the global financial crisis,” said Rod Ringrow, head of official institutions at Invesco.
Average annual yields for sovereign investors over the past decade have risen to 6.5% and, for sovereign wealth funds alone, 10% in 2021, according to Invesco. However, 2022 could prove to be a turning point, with higher inflation and tighter monetary policy hitting long-term expected returns.
While the US remains the top destination, some sovereign investors have been keen to rebalance their portfolios, fearing they have become too dependent on US markets, leaving them vulnerable to the equity market correction seen this year, according to Invesco. In 2014, the UK was the top destination.
Emerging markets will benefit from this latest change, according to the study.
Among developing countries, India overtook China as the most popular emerging market, climbing to second place in 2022, up from ninth in 2014.
“While this was partly due to funds with dedicated Asian allocations reducing their exposure to China, investors welcomed India’s positive economic reforms and strong demographic profile,” according to the study.
China is currently in sixth place.
The last decade has also seen a steady increase in the creation of sovereign wealth funds with a dozen funds established in Africa, 11 of which have a strategic mandate to develop local economies, Invesco found.
