SWFs' AUM Surge As Interest in Real Assets Grows

LONDON–Assets under management for the world’s sovereign wealth funds have surged this year, according to Preqin, rising 13% over the last 12 months to reach $7.45 trillion as of March 2018.

Seventy-one percent of SWFs saw their assets increase in the last year when funds added $866 billion in AUM, Preqin said, although it also noted that almost one in five, or 19%, saw a decrease. During this period Norway’s Government Pension Fund Global broke the $1 trillion barrier to a record $1.06 trillion in assets as of March. In this same stretch, Russia’s Reserve Fund ceased operations with its capital used to cover budget shortfalls.

This growth follows a period of lackluster progress for these funds. From March 2015 to March 2017, for instance, AUM rose by 4%.

“The pace of growth in sovereign wealth fund assets had slowed considerably in recent years, as these investors faced significant challenges from falling oil prices and domestic budget shortfalls,” says Setlina Sy, editor of the 2018 Preqin Sovereign Wealth Fund Review, in a prepared statement. “This seems to have reversed itself in the past 12 months.” The recovery in oil prices and stronger-than-expected growth in emerging markets such as China have played a role in that reversal, she says.

Interest in Real Assets Is Increasing

Preqin also notes that while the largest proportion of SWFs — 82% and 78% respectively — invest in public equities and fixed income, there is growing interest in real assets. It said that 64% and 59% of SWFs invested in infrastructure and natural resources, respectively — an increase of one percentage point for infrastructure and four for natural resources over the past 12 months.

This is not the only indicator of SWFs’ interest in real estate. A separate stat provided by the SWF Transaction Database, shows that wealth funds invested $31.2 billion in the real estate sector in 2016 compared with $12.3 billion in 2011.

“It is interesting to see that SWFs seem to be balancing their portfolios away from traditional asset classes such as public equities and fixed income and becoming increasingly involved with alternative assets,” Sy says. SWFs have begun investing in real assets over the past year seeking diversification and long-term inflation hedges, she adds. “Given that most operate with long horizons and capital growth priorities, real assets suit many sovereign investors’ requirements and we may see this shift continue over the coming years.”