Sovereign funds target emerging markets

Global sovereign investors made more investments in emerging markets last year and may continue to do so this year despite an underlying preference for developed markets, an annual study conducted by Invesco finds.

The favourite picks of sovereign investors are also increasingly shifting to alternative assets - real estate, private equity and infrastructure, among others - partly because of volatility in global equity markets and lower yields on treasuries, according to the Invesco Global Sovereign Asset Management Study released yesterday.

"This year's findings indicate short-term trends are driven by long-term strategic thinking and emerging markets, and alternatives are becoming firm fixtures in sovereign investors' strategic asset allocations despite a deep-rooted faith in developed markets that still remains," said Nick Tolchard, a co-chair of Invesco's Global Sovereign Group.

Invesco, a global investment management firm in Asia, conducted the annual study among 52 individual sovereign investors in the world, which between them held US$5.7 trillion (HK$44.2 trillion) of assets at the end of last year.

Sovereign investors are defined as state-owned players, including stand-alone sovereign wealth funds, central banks, state pension funds and government ministries.

China, Africa, Latin America, India and emerging Asia attracted more funds from sovereign investors last year, with the trend expected to continue this year, the study said.

"The fact that emerging market equities underperformed developed market equities during 2013 did not offset this long-term structural trend to emerging markets," it said.