Asia’s SWFs sharpen focus on alternatives

25 June 2014   Category: News, Asia, China, Global, Singapore   By Daniel Shane

Sovereign wealth funds (SWFs) across Asia are seeking to increase their allocations to alternative asset classes including real estate, infrastructure and private equity, according to a new report by fund manager Invesco.

Invesco’s latest Global Sovereign Asset Management Study, which provides insight into the behaviour of sovereign investors around the globe, found that 60% of Asian SWFs want to raise their allocations to real estate, relative to their overall portfolio, while 75% seek to do so for global infrastructure.

This represents an increase compared to the same report last year, which found that 56% and 71% were hunting for investment opportunities in these asset classes, respectively.

Analysis of the findings by Invesco, which were based on interviews with executives from 50 SWFs globally, suggested that rising appetite for alternatives was part of a long-term structural shift in strategic allocating, as opposed to short-term, tactical allocating.

Invesco also found that 56% of SWFs in Asia, which include the mega-rich Government of Singapore Investment Corporation (GIC) and the China Investment Corporation (CIC), expect their funding levels to rise over the next year. On a global basis, just 46% anticipate that they will receive more funding from their respective governments over the coming 12 months.

The report also attributed an increasing hunger for alternatives among sovereign investors to the fact that this asset class underperformed during the survey period. SWFs cited an average return of 7% from these assets – lower than their target return of 8%. Invesco said that this indicated that increasing their overweight in these asset classes is a long-term, strategic decision, rather than a tactical one.

“Given alternatives underperformed during the period in which their allocations increased, it is clear that a strategic asset allocation strategy is driving sovereign investors to alternatives, rather than tactical allocation,” commented Nick Tolchard, head of Invesco’s global sovereign group and head of Invesco Middle East.

“The expected net increase in new funding this year is another key factor that explains this preference for alternatives, driven by increasing country surpluses and strong support from governments for their sovereign funds. However, the main reason is that many sovereign investors, especially those with assets in excess of US$50 billion, are seeing it take time to deploy assets in alternatives and emerging markets and are yet to reach the asset allocation targets set five years ago,” he went on.

High profile examples of Asian SWFs investing in alternative asset classes include in November last year, when Singapore’s GIC teamed up with the United Arab Emirates’ Abu Dhabi Investment Authority to jointly invest $600 million in Time Warner’s New York headquarters as part of a $1.1 billion deal.

A month later, GIC paid $2.89 billion for a 50% stake in the City of London’s Broadgate office development. In January this year, CIC forked out $1.36 billion for Chiswick Park, a major office complex in west London.