A study conducted by FT Remark in association with State Street found official institutions are continuing to expand across a greater array of territories and into alternative asset classes such as private equity, hedge funds, commercial real estate and infrastructure in order to achieve investment goals.
The study surveyed executives from a wide range of central banks, sovereign wealth funds and public pension funds across Europe, the Middle East, Africa, Asia Pacific and the Americas.
The results indicated 80 per cent of the official institutions surveyed expect to increase their exposure to new markets and their exposure to alternative assets.
Commenting on the findings, Tufts University adjunct assistant professor Patrick Schena said official institutions are looking to leverage the benefits of “lower correlations across asset classes”.
“At the same time, they are seeking higher returns or better risk-adjusted performance,” said Assistant Professor Schena.
Mr Schena said many of these institutions have longer investment horizons so they are able to “pursue higher premia from less liquid assets, including private real equity, real estate and infrastructure”.
State Street vice chairman Joe Antonellis said this increased diversity presents a number of issues from managing diverse regulatory requirements across international markets and the volatility of some types of holding.
This was evident from responses to the survey, with 73 per cent of executives stating that changes in regulation across global markets represent a challenge and 51 per cent stating measuring and monitoring currency risk as a concern.
Portfolio managers need to “balance the need for a more wide-ranging approach to portfolio management against the resulting risks”, the report said.
