Sovereign investors tilt to U.S., emerging markets – Invesco study

The U.K. is no longer the first investment destination for sovereign investors, according to Invesco‘s Global Sovereign Asset Management Study, which found it slipping to fourth place behind the U.S., India and Germany.

The study also found a tilt toward emerging markets and a slowdown in private markets.

The study, conducted by NMG Consulting for Invesco, includes proprietary data from the past 10 years plus interviews with prominent sovereign investors that today manage a collective $33 trillion in assets.

Since the first study in 2013, the size and scope has gradually evolved and expanded, Invesco said in a news release Monday. Over that period, sovereign investors have grown in scale and influence, maturing into “high-profile public institutions expected to be transparent, accountable, and driving positive economic and social change,” the release said.

Trends over the past decade include more development sovereign funds committed to developing their local economy. That is particularly noticeable in Africa, with 12 new sovereign wealth funds established in the last 10 years — most playing a strategic role in developing local economies. Those funds have also gotten more sophisticated with aggressive return targets, the study found

Direct strategic investments that in 2014 made up 79% of development sovereigns’ portfolios fell to 46% in 2022, replaced by higher allocations to equity, fixed income and alternatives.

Sovereigns now manage $719 billion in private assets, up from $205 billion in 2011, and allocations to private equity, real estate and infrastructure grew to 22% in 2022 from 8% in 2013.

As sovereign investors compete with other large institutional investors for private assets, some survey respondents questioned whether the pace can be maintained over the next decade, Invesco said.

The sovereign investors also expressed interest in fixed income’s diversification potential, potentially reversing a trend that saw their allocations drop to 29% in 2022 from 38% in 2014, the survey found.

Emerging markets seem poised to benefit from these trends, Rod Ringrow, head of official institutions at Invesco, said in the release. “As very long-term investors, they are generally more comfortable with the political and currency risks often found in countries with rapidly growing populations, which can deter other types of institutional investors. These markets are seen as offering long-term opportunities in real estate and infrastructure, in particular,” Mr. Ringrow said.