Sovereign wealth funds are going private

A third of sovereign wealth funds in a survey say they have increased their holdings of alternative assets, such as assets that are not publicly listed.

“One of the biggest findings from this research is the growing focus on private markets,” said Will Kinlaw, global head of State Street Associates, which carried out the study in collaboration with the International Forum of Sovereign Wealth Funds.

None of the eight funds contacted for the white paper had reduced their exposure to alternatives. Though the researchers did not say which funds had contributed, the forum’s 30-strong membership includes Middle Eastern funds such as the Abu Dhabi Investment Authority and the Qatar Investment Authority.

The researchers found that sovereign wealth funds believed their long-dated liabilities allowed them to profit by holding illiquid assets that other investors are cautious of buying.

“They also thought that private markets are less efficient and, therefore, present more opportunities for return,” said the researchers.

Of ten member funds surveyed for a second white paper, half said they had had to change their governance process to overcome challenges related to private asset purchases.

“Despite the allure of these investments, sovereign wealth funds are aware of the potential risks, with illiquidity topping the list,” said Kinlaw. “However, many have invested considerable time and resource in assessing these markets and have clearly identified attractive opportunities here.”

©2017 funds global mena

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