Dubai: Middle East sovereign investors who account for $1.4 trillion of assets managed globally are allocating significantly high portion of their assets to home markets, but increasingly these funds are expanding their allocation to emerging markets and alternate asset classes according Invesco Asset Management.
The findings are from the Invesco Asset Management Study. The Middle East study, the fifth annual survey of its kind, was based on 52 interviews with employees at sovereign wealth funds.
Home market allocations by Middle East sovereign investors are about 42 per cent on average. Sovereign investors are broadly categorised into 4 categories based on their objectives such as investment, development, liquidity and liability. Overall the Middle East is weighted to development and investment sovereigns compared to the global average. However, in terms of assets, the Middle East is strongly weighted to investment sovereigns.
“There are few liquidity sovereigns in the Middle East because investment sovereigns are well established and have previously separated from the Central Bank. Investment sovereigns still have liquidity objectives and we note that at least two investment sovereigns provided liquidity for Middle East governments during the global financial crisis,” said Nick Tolchard, head of Invesco Middle East.
However, these are generally seen as the second line of defence behind Central Banks for liquidity, with the weight of assets and primary objective being investment.
The study observed that regional sovereign investors are expected to increase their asset allocation to emerging markets and alternatives. Every Middle Eastern sovereign wealth fund plans to increase its exposure to real estate in the year ahead and most also plan to increase their allocations to private equity, says a long-standing survey of investors based in the region.
“From an investment perspective, Middle East sovereign trends are comparable to international peers. They plan to increase new allocations to emerging markets with more sovereigns expecting to increase emerging market placements than the global average. They also plan to increase new allocations to alternatives with nearly all Middle East sovereigns expecting to increase exposure to private equity and real estate. These shifts are typically driven by the same strategic asset allocation adjustments experienced globally.
Overall the Middle East sovereigns are more confident for the future, scoring higher for their ability to deliver long-term performance compared to the global average. For example the major Middle East investment sovereigns said that they have earned greater autonomy from government and appear to have greater flexibility to attract and retain key staff than their international peers.
Because sovereign wealth funds are increasingly developing alternative asset class capabilities in-house, Tolchard said asset managers must work hard to identify needs that can be met by external providers.
