Sovereign wealth funds risk inflating global property bubble

An estimated US$2.7 trillion push into real estate by the world's major central banks, sovereign wealth funds and state pension funds has raised the risk of inflating a dangerous global property bubble, a new report on public sector institutional investments warns.

"Asset price bubbles have been building up in sections of the capital markets as a result of central banks' quantitative easing, particularly in Europe. These risks may now be spreading to real estate and infrastructure investment," the Official Monetary and Financial Institutions Forum (OMFIF) said in a statement alongside publication of its new Global Public Investor survey.

The survey of the world's 500 biggest public sector institutions in 180 economies which control US$29.7 trillion of funds reveals that almost half of the investors plan to increase property and infrastructure holdings - making allocations to those areas by a larger amount than for any other asset class.

Some 28 per cent of survey respondents plan to add to their fixed income holdings, while 27 per cent said they would raise allocations to public equity markets. Just 4 per cent of funds said they would be cutting equities - the lowest indicated fall of any asset class, which implies a steady stream of capital being channelled into already frothy global stock markets.

Increased allocations to hedge funds were planned by 9 per cent of respondents, while 8 per cent planned to cut exposure there.

By geography, public institutions believe they will get the best returns from the Asia-Pacific over the next five years, with 43 per cent ranking the region top choice, more than twice as high as the next most positive response for other regions. North America was second, followed by Africa, Europe and Latin America.