Because Sovereign Wealth Funds (SWFs) play such an important role in global capital markets, we continue to track their asset allocation preferences. The following report is an update to our 2015 study of SWF asset allocation. Our main findings three years on are:
From the turn of the millennium onwards, the SWF sector experienced rapid growth in assets under management (AuM), but that has now come to an end. The slowing of organic asset accumulation and the proliferation of new SWFs carries great implications for asset allocation. We are publishing this update to our 2015 article2 to discuss the changes in the sector over the past two years and to offer several new angles from which the sector can be viewed.
1 “Alternatives” is the term used to encompass all asset classes that are not publicly traded, notably referring to private equity, real estate, hedge funds, infrastructure and private debt.
2 Elliot Hentov, “How Do Sovereign Wealth Funds Invest? A Glance at SWF Asset Allocation,” State Street Global Advisors, 2015.
As we move into 2018, we believe macroeconomic conditions will support risk assets. Global growth is becoming more evenly distributed and is expected to return to its historical trend rate of 3.7%, while inflation remains muted.
Unprecedented demographic changes are under way across the world, and their speed and magnitude are greater than ever before. Like the technology disruptions overturning conventional wisdom about industries and business models, demographic disruptions will force countries to
rethink foundational policies around retirement, labor force participation, healthcare and much more. Investors will need to rethink savings and spending objectives over much longer time horizons. We believe the impacts of these demographic shifts have not been adequately assessed
and accounted for.