Sovereign investors are reshaping portfolios in response to changing economic conditions, according to a sovereign asset study by investment manager Invesco.
The '2023 Global Sovereign Asset Management Study', which involved 142 investment officers overseeing $21 trillion in assets, highlighted a reevaluation of fixed income and a renewed interest in emerging markets.
With negative returns in 2022, the study found investors are actively rebalancing fixed income and exploring alternative segments such as private credit.
This shift reflects a departure from the traditional "set and forget" approach to fixed income, the report said, with investors now favouring a more active and tactical approach to create value and manage risk.
Additionally, alternative fixed income segments, including private credit, high yield and infrastructure debt, are seen as attractive options.
The survey found emerging markets are expected to match or outperform developed markets, with India particularly attractive.
Sovereign investors recognise the resilience, institutional strength and stability of key emerging markets, said Invesco, with the renewed appetite for emerging markets reflecting a shift from a sole focus on developed markets amid the normalisation of higher interest rates.
The survey also found that infrastructure, especially projects related to renewable energy, emerges as the most appealing asset class. Sovereign investors see tremendous potential in green infrastructure investments, driven by the global surge in demand following the war in Europe and the subsequent energy crisis, stated Invesco.
This heightened interest in renewable energy generation aligns with the increasing focus on sustainable investments and the energy transition, said Invesco.
Rod Ringrow, head of official institutions at Invesco, stressed the importance of flexibility and responsiveness in navigating the evolving market conditions. He stated, "Sovereigns need to demonstrate greater flexibility and responsiveness to market conditions."
Despite the challenges, Ringrow noted that the global economy remains resilient, and expected returns across asset classes are higher than in recent years.
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