LONDON: A rotation by sovereign wealth funds and other institutional investors to add risk since the COVID-19 pandemic, moving from cash and bonds to stocks, may have further to run as many still have large cash positions, according to research published Thursday.
Investors had a more positive outlook for 2021, having reached a risk-neutral level across asset classes after starting last year with the highest cash levels since the 2009 financial crisis, the research from State Street Corporation and the International Forum of Sovereign Wealth Funds (IFSWF) found.
Many are also adding to their exposure within private markets, with a particular focus on infrastructure and real estate, hastened by low real returns in public markets, according to the findings, based on State Street data and an IFSWF survey of seven of its largest sovereign fund members.
For example, sovereign fund investments in private markets more than doubled during 2020 to $50.3 billion, IFSWF data showed, in part due to funds helping out their portfolio companies hit by the pandemic.
“The current macroeconomic environment, anticipated fiscal stimulus and portfolio positioning of institutional investors and sovereign wealth funds present reasons to be optimistic as we move further into 2021,” said Neill Clark, head of State Street Associates, Europe, Middle East and Africa at State Street.
There was a marked uptick in interest in US equities in 2020, with IFSWF data showing over $16 billion invested across 46 deals in 2020, up from $2 billion across 28 deals in 2019.
The rise was largely due to Saudi Arabia’s Public Investment Fund’s countercyclical investments in energy, consumer and financial sectors at the peak of the crisis in the second quarter.
Institutional investors also scaled back investments in emerging markets and withdrew from investments in Britain during 2020, according to the research.
Still, IFSWF data indicated an uptick in sovereign fund investments in the country to $4.4 billion in 2020 compared with $1 billion in 2019, almost two-thirds in private markets, as funds eyed deals in the battered economy.
With assets such as global stocks and bitcoin near record highs, talk of bubbles in certain sectors has increased this year. Yet State Street said it did not see evidence of bubble behaviour and sovereign funds surveyed in the report were generally not worried either.
One IFSWF member surveyed did express concern about the number of special purpose acquisition company (SPAC) initial public offerings, the number of tech firms trading at more than 20 times revenues and multiples that private equity firms are paying for deals.
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