Sovereign wealth funds are increasinglytaking advantage of alternative, unlisted and private investment opportunities, new research from State Street has found.
A white paper released by State Street and the International Forum of Sovereign Wealth Funds (IFSWF) found a “significant increase” in sovereign wealth funds’ private market allocation over the last three to five years.
State Street Associates senior managing director and global head Will Kinlaw said SWFs were “balancing traditional financial theory with the complexities presented by today’s real-world circumstances” and as such were looking to private markets to benefit from the longer investment time frame.
“[SWFs] recognise that, in many cases, their long investment horizons represent an advantage, and they are seeking investments that will provide attractive long-term return, risk, and diversification properties.”
“What looks appealing based on monthly returns may look much less so when the horizon is measured over multiple years,” he said.
SWFs “substantially” expanded their alternative, unlisted and private investment portfolios over the last three to five years, Mr Kinlaw said, with 30 per cent of the surveyed funds increasing their exposure to these investments, and none reducing.
Mr Kinlaw said that SWFs were “aware of the potential risks” associated with these investments, particularly risks associated with illiquidity, but had nevertheless found suitable investments.
“Many have invested considerable time and resources in assessing these markets and have clearly identified attractive opportunities here,” he said.