Sovereign investors are continuing to reposition their geographic allocations to capture long-term opportunities in China amid US-China trade tensions, a survey from Invesco has found.
The investment management firm asked sovereign investors – including sovereign wealth funds, development sovereigns and central banks – about their biggest concerns for its Invesco Global Sovereign Asset Management Study 2019.
More than 80 percent said the ongoing US-China trade dispute remains a key concern and is having an impact on asset allocations. They are optimistic that ongoing negotiations can have a positive impact for foreign investors, particularly with China relaxing foreign investment rules this year and making improvements in protecting intellectual property, the report noted.
Almost two-thirds are shying away from Europe due to Brexit while almost half listed internal politics in the Eurozone as a concern, leading to increased exposure to emerging markets.
“Access is less of an issue now – things have freed up especially for sovereign wealth funds,” said an EMEA-based liability sovereign in the report. “The Chinese government has visited us and taken steps to encourage investment and facilitate introductions to China-based asset managers.”
Large sovereign investors – those with assets under management of $100 billion or more – are targeting China specialists. Examples include Singapore’s GIC, which teamed up last year with logistics manager GLP for a $2 billion China logistics-dedicated fund. Scale is also an advantage for sovereigns looking to invest more actively in China, with the local government preferring their capital over other investors.
Some large-scale sovereigns have also established dedicated technology teams to assess investment opportunities and the risks that technological innovation may represent to other parts of their portfolios. Australian SWF Future Fund has backed venture firms Blackbird Ventures, Square Peg Capital and has had exposure to Chinese tech companies including ride-sharing app Didi. Singapore’s Temasek has investments in tech companies including Indian digital payment platform Pine Labs and Chinese electric vehicle company NextEV.
Investments in artificial intelligence-related companies have become more attractive, with more than 60 percent of sovereigns saying AI will have significant impact in society over the next decade.
Overall appetite for alternatives has been on an upward trend over the past five years, with sovereign investors now having an average allocation of 21 percent. Within alternatives, private equity and infrastructure remained the largest sub-sectors and registered further increases to 6.9 percent and 2.7 percent, respectively, this year.
For the study, Invesco polled 139 chief investment officers, heads of asset classes and senior portfolio strategists from 68 sovereign funds and 71 central banks. These investors managed more than $20 trillion in assets as of March.