ATLANTA, June 21, 2016 /PRNewswire/ -- Invesco
released its fourth annual Invesco Global Sovereign Asset
Management Study,* an in-depth report on the complex
investment behavior of sovereign wealth funds and central banks,
conducted face-to-face amongst 77 individual sovereign investors
and reserve managers across the globe and representing 66% of
sovereign assets and 25% of foreign reserves - totalling
$8.96 trillion** of
assets.
This year's study reveals that despite continued market
volatility and the sustained low oil price, U.S. sovereign investor
confidence is stable and they continue to pursue long-term
investment goals through strategic asset allocation. This year
there is a strong preference for the Unites States above other
geographical regions and an increased appetite for real estate
investment to drive allocations towards alternatives.
Sovereign investor confidence stable despite
challenging external environment
While the challenging
macro-economic environment, driven by the sustained low oil price,
has impacted global sovereign investment performance, with average
annual portfolio returns having fallen, U.S. sovereign investors
remain better prepared in terms of investment capability and
governance. On average, new funding accounted for 6% of assets,
while the average sovereign investor withdrew or cancelled only 4%
of assets, as sovereigns cope with funding challenges.
Time horizons for investing are also lengthening as U.S.
sovereign investors manage these challenges, rising from 6.4 to
10.0 years over the past four years amid continued interest in the
diversification benefits and illiquidity premiums offered via
alternatives.
The study indicates that overall U.S. sovereign investor
confidence has been stable since 2013 - with Invesco's Sovereign
Confidence Index highlighting that overall confidence has
increased from 7.2 in 2014, to 7.8 in 2016. Tracking confidence
based on returns and aggregate capabilities (looking at investment
expertise, people and talent, governance and third parties), the
index shows that global liability & development sovereigns
report increased confidence consistently across both categories.
While lower returns have impacted global investment & liquidity
sovereigns, who have seen confidence based on performance drop from
8.4 in 2014 to 7.7 this year, confidence in aggregate capability
has gone up from 7.4 to 7.8 over the same period.
Alex Millar, Head of EMEA
sovereigns and Middle East and
Africa institutional sales at
Invesco, commented: "Many sovereign investors are now
comfortable operating in an environment with limited new funding.
Some have ceded assets to governments without cancelling long-term
investments, while others have not been called upon at all for
withdrawals over the last 12 months. Many of these institutions
appear confident in their funding outlook and are increasing the
importance of their investment objectives relative to their
short-term liquidity needs."
The United States becomes
the most attractive market for sovereign investment
While the United Kingdom had
previously emerged as the preferred developed market for western
sovereign investment, the United
States has taken the lead in 2016. Scoring a rating of 8.3
(out of ten) in attractiveness to sovereign investors in 2014, this
has risen to 8.7 in 2016 - compared to a slightly lower 7.7 rating
in 2016 for the U.K. Western sovereign investors also remain
bullish on future opportunities in the
United States, and in U.S. infrastructure in particular.
Sovereign investors globally expressed the view that
the United States appears
increasingly open to their investments following positive
perceptions of sovereign investments into the U.S. financial sector
during the global financial crisis. Many also feel it is now easier
and more attractive to invest in the
United States, in large part-linked to more investment
friendly policies such as the introduced exemption in 2016 for
'qualified foreign pension funds' from the Foreign Investment in
Real Property Tax Act on real estate purchases.
New allocations to frontier markets - shifting away from BRIC
countries
New allocations to frontier markets are
also on the rise, with western allocations to Africa increasing from 0.5% in 2014 to 1.1% in
2015. Manufacturing capability, political stability, and the
quality of infrastructure are cited as key factors for this change,
and via a range of products including conventional equity and fixed
income products, and direct investments into alternatives such as
real estate.
Conversely, the BRIC markets - Brazil, Russia, and China - have all lost their attractiveness to
U.S. sovereign investors amid weaker performance, with only
India becoming increasingly
attractive over the last two years. In comparison to the last few
years, sovereign investors globally are now less willing to
overlook political and regulatory concerns in these regions in
order to hit target allocations. Sovereign investors note a
struggle with commodity prices and falling stock markets for large
export markets like Brazil and
Russia, while the shrinking labour
force in China is driving up
manufacturing costs and squeezing private sector margins.
Alex Millar explained:
"Despite being long-term strategic investors, sovereign
investors are quick to adjust to perceptions of market
attractiveness, responding to latest market data or regulatory
change. Market performance and public policy also factor into their
longer term strategic asset allocation choices - especially
geographically. The ability for governments to attract sovereign
investment via policy decisions is a key finding and presents an
opportunity for governments globally to attract significant long
term capital to support economic growth."
Real Estate emerges as the preferred asset
class
U.S. sovereign investors have focused on increasing allocations to
infrastructure and private equity over the last two years; however
attitudes have changed in 2016, and for the first time fewer
sovereign investors expect to increase allocations to these asset
classes. While allocations to infrastructure and private equity
have remained steady over the last three years, total allocations
remain low. From 2013 to 2015, western sovereign investors' average
total portfolio assets to infrastructure increased from 3.5% to
4.2%, while private equity fell slightly from 5.8% to 5.7% of the
average sovereign portfolio, as U.S. sovereigns focused on
internalising private equity management.
Conversely, their allocations to real estate have risen from
7.1% in 2013 to 8.2% in 2015. Global sovereign investors expect to
increase global and local allocations into real estate more than
any other asset class in order to meet diversification and absolute
return objectives.
Sovereign investors globally attribute this largely to real
estate investments carrying fewer execution challenges than private
equity and infrastructure, where sovereigns have encountered
difficulties in deploying their assets. Investors also cite a
greater number of credible global asset managers, and a long list
of developers and operators, to partner with in real estate
investments. As a result, more than 75% of U.S. sovereign investors
are underweight infrastructure and 75% underweight private equity,
relative to their target allocations7.
Alex Millar concluded:
"While the challenges facing sovereign investors since the start
of this period of oil price volatility have clearly not gone
unnoticed, and returns have been affected, confidence among global
sovereign investors is relatively high. Within Invesco's sovereign
investor profiles*** this confidence is most
noticeable amongst Liability and Development sovereigns, while
Investment and Liquidity sovereigns have faced greater challenges
due to the importance of commodities to their new funding. This
year's study reinforces the view that sovereign investors are
better prepared to cope with volatility and funding challenges, and
continue seeking strategic asset allocation opportunities, building
in-house capabilities, and exploring expert investment partners in
order to structure their portfolios towards securing diversified
returns for the long-term."
Notes to Editors:
The full 2016 Invesco Global
Sovereign Asset Management Study can be found at:
www.igsams.invesco.com.
* This is Invesco's fourth sovereign asset management study. In
2016 we conducted interviews with 77 different sovereign investors
compared to 59 in 2015. The findings have been validated using
'common cohort' analysis of the 44 interviews conducted with the
same firms in the past three years. In this study Invesco defines
sovereign investors as state-owned investors, which includes:
standalone Sovereign Wealth Funds (SWFs), state pension funds,
Central Banks and government ministries.
** Sourced by NMG Consulting: total assets of those sampled
stands at $8.96 trillion as at year
end 2015.
*** The Invesco Global Sovereign Investor
Model bases its segmentation on investment objectives
and outlines four key profiles.
About Invesco Ltd.
Invesco Ltd. is a leading
independent global investment management firm, dedicated to helping
investors worldwide achieve their financial objectives. By
delivering the combined power of our distinctive investment
management capabilities, Invesco provides a wide range of
investment strategies and vehicles to our clients around the world.
Operating in more than 20 countries, the firm is listed on the New
York Stock Exchange under the symbol IVZ. Additional information is
available at www.invesco.com .
The Invesco Global Sovereign Asset Management Study is intended
only for Institutional Investors in the
United States. This document is for information purposes
only and is not an offering. It is not intended for and should not
be distributed to, or relied upon by, members of the public.
Circulation, disclosure, or dissemination of all or any part of
this material to any unauthorized persons is prohibited.
This document is issued in the US by Invesco Advisers, Inc., Two
Peachtree Pointe, 1555 Peachtree Street, NE, Atlanta, GA 30309
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