Invesco Global Sovereign Asset Management Study 2019

Welcome to the 2019 study

Our seventh Invesco Global Sovereign Asset Management Study (IGSAMS) offers unique insights into the investment objectives and behaviours of sovereign investors amid a challenging environment.

Through face-to-face interviews with 139 chief investment officers, heads of asset classes and senior portfolio strategists who are managing over US$20 trillion in assets (as of March 2019), we found that there is now an uptick in allocation to fixed income, Chinese assets and alternative asset classes at the expense of European exposures.

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We distill the five key themes that are at the top of minds of managers of sovereign wealth funds and central banks.

The view from Asia Pacific

Even as Asia Pacific investors are planning to increase their exposure to equities, they are also diversifying through investing in alternatives such as infrastructure.

Emerging markets are becoming more attractive to invest in, with Chinese equities among the most preferred choice. Fixed-income allocations are likely to increase following China’s inclusion in global bond indices.

Allocations to fixed income and China are on the rise

Ageing cycle sees sovereigns defend, diversify and explore new opportunities.

Sovereigns are preparing for the end of the economic cycle with allocations to fixed income rising in 2018. As a result, portfolios are becoming more diversified.

We find that fixed income have displaced equities as largest asset class for sovereigns. In terms of geography sovereigns have allocated away from Europe to emerging markets, notably China.

Investing at scale

Funds are split on their risk appetite.

Large sovereigns are better placed to assess and access new opportunities than their smaller peers. They are seeking alpha in specialised areas including China and the technology sector.

Amid a more subdued return environment going forward, sovereigns of different sizes are split about whether to diversify and accept lower risk adjusted returns, or become more concentrated and accept higher idiosyncratic risks.

Environmental considerations move ESG firmly into the spotlight

ESG integration continues at pace with environmental factors to the fore.

ESG adoption continues to gain traction amongst both sovereigns and central banks as it becomes clearer how to derive value from its application.

Among these issues, environmental concerns are increasingly becoming the lead focus, with carbon emissions and climate change the single most important ESG issue.

Technology investors, late technology adopters

Sovereigns are backing the emergence of new technologies.

To support these efforts, some sovereigns have built internal technology teams and/or portfolios, with development and investment sovereigns furthest ahead in their thinking about the wider impact of technology.

In their own businesses, sovereigns prioritise process improvements and the integration of technology into the portfolio is surprisingly muted.

Central banks seek liquidity and safety, benefiting China's renminbi

More uncertainty is prompting central banks to shift away from government bonds and traditional reserve currencies.

Central banks have undertaken a significant rotation of their low risk asset portfolios from government bonds to deposits.

Allocations to traditional reserve currencies of the dollar, euro and sterling have reduced in favour of greater diversification, including the renminbi, while a small number of banks have made large gold purchases.

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