Sovereign wealth funds, which control about $6 trillion of wealth globally, are boosting investments in alternative assets like real estate and private equity to increase returns, a survey by Invesco Ltd. found.
The wide swings in equity prices and the “market-wide dissatisfaction with risk-return profile of equity investing,” together with low interest rates on fixed-income products, has pushed government-controlled funds to consider alternative assets to enhance growth, Invesco said in a report released in Dubai today. Alternative investments include international and local private equity, real-estate, hedge funds, infrastructure and commodities, according to the report.
Alternative investments made up 21 percent of the total assets of sovereign wealth funds in the west and these assets rose 26 percent in value over the last 12 months. The 29 surveyed funds, which controlled about 80 percent of global sovereign wealth fund assets, expected average annual returns of 8 percent from alternative assets, compared with 7 percent from equities, 4 percent from bonds and 2 percent from cash.
“There is also an increasing trend of direct investment in private equity rather than through third party funds,” Nick Tolchard, Invesco’s managing director for sovereign investors, told a news conference today. Middle East sovereign funds including the Abu Dhabi Investment Authority and the Kuwait Investment Authority held about $2 trillion in assets, he said.
Invesco had $705.6 billion of assets under management at the end of June. Its second-quarter profit rose 32 percent to $202.6 million as equity market gains boosted assets.