Sovereign Investors To Focus On Safe Haven Markets

Sovereign investors are moving away from the United Kingdom (UK) as an investment destination post Brexit, preferring to invest in countries like Germany and India, indicating their desire to be present in safe haven markets.

This was revealed in the fifth annual report released by investment management firm Invesco Asset Management. The report is based on interviews with 97 sovereign investors – who are government-backed investors such as wealth funds, pension or superannuation funds and central banks – who as a whole manage close to $12 trillion in assets.

According to the report sovereign investors failed to reach their target returns this past year posting 2 percentage points lower returns on an average. With a slowdown observed in terms of government contribution into the funds, investors are seeking higher yielding asset such as commercial real estate based on the report.

A large percentage of sovereign investors covered in the study are overweight on global real estate in 2016 – a trend that is expected to be repeated this year as well with 46 percent planning to be overweight in 2017.

The focus on real estate is mainly due to limited access to other high return but illiquid assets like private equity and infrastructure. Real estate is also attractive since it allows the government funds to earn rental income. In terms of geographical markets, investors were asked to list the most attractive destinations for investment in the survey. The U.K saw the biggest drop, dropping from a score of 7 out of 10 to 5 this year.

In a statement Alex Millar, head of EMEA sovereigns at Invesco said

You've got this multiple-year uncertainty. Some people said it was a buying opportunity, others are a bit more cautious. Where traditionally they might have used the UK as a gateway for their European investments, now they are looking a bit more at Germany

Millar pointed out that Germany was one of the most developed financial markets in Europe and was among the safest markets to invest. The United States topped the list scoring 8 out of 10. Nearly 37 percent of those covered in the survey said that they were overweight with regards to investments into North American markets in 2016 vis a vis their overall portfolio.

In 2017, this would be likely to go up to 40 percent. Millar noted that the U.S. was being rated highly due to strengthening interest rates, the promise of pro-business tax changes and expected jump in infrastructure spending – as indicated by Donald Trump's agenda.

Charlie Harrison

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