Growing protectionism could slow investment in real estate, infrastructure by sovereign wealth funds

Sovereign investors are facing a tougher environment for deal making as rising protectionism threatens to curb inward investment and stunt trade, suggesting private market activity may have reached a plateau, said the co-author of a report released on Monday.

In recent years, sovereign wealth funds have ramped up their exposure to real assets, snapping up iconic skyscrapers in London and Manhattan, luxury hotels and multi-year concessions for Australian ports.

The aim was to tap the “illiquidity premium” on offer for investors able to tie up capital for longer as an alternative to low-yielding government bonds.

But Bernardo Bortolotti, director of the sovereign investment lab at Bocconi University and co-author of a report showing a slowdown in sovereign wealth fund real estate and infrastructure investment in 2017, said the high watermark for private deal making had passed.

This is partly because some Middle East funds have rebalanced their portfolios towards more liquid assets, such as equities, to accommodate draw downs from cash-strapped governments needing to plug budget gaps.

But it is also because the United States is locked in an increasingly bitter dispute with its key trading partners, potentially reducing trade and global economic growth.