“With most regions showing strong demand for private markets, the Middle Eastern sovereigns are the most targeted in their programmes, with allocations into private credit increasing 44% and infrastructure by 33%,” said Invesco, a global investment management company.
In contrast, for private equity a similar number of sovereign investors are reducing allocations in favour of other forms of private market asset classes as those making new allocation, it said.
The study found that Middle East sovereigns are the most committed users of active management, with an average of 65% of portfolios actively managed.
The Middle East sovereign investors also often pursue opportunistic strategies in less traditional, less efficient markets where active management can potentially deliver significant alpha. They also tend to have a significant internal active equity team, which means that the cost implication of higher use of active strategies is muted.
“Private markets are favoured by many sovereign investors thanks to the long-term and illiquid nature of many asset classes within this market. However, investing in private markets has been a consistent challenge for sovereign investors, and as a result many remain underweight,” said Zainab Kufaishi, head of Institutional Sales for Middle East and Africa at Invesco.
Highlighting that as allocations to equities increase, this year’s study has revealed there are “significant” evolutions in approach, Invesco said, passive management, and to an extent factor investing, have made significant inroads into portfolios.
Over the last three years, just under half (45%) of sovereign investors undertook some degree of rotation out of active strategies into passive and factor investing, to the point where less than half of equity portfolios are now actively managed, it said, adding this has been strongest amongst sovereign investors in the West.
“Our study has once again highlighted how diverse sovereign investors’ strategies are and their increasing willingness to think globally in terms of finding the right assets for their portfolios. With sovereign investors seeing particularly strong outcomes over the past year, there is likely to be further evolution over the next 12 months as they become increasingly more sophisticated,” said Kufaishi.