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1、2023Invesco Global Sovereign AssetManagement StudyWelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixContents02Theme 1 07Building portfolios in the new macro environmentAmid persistent high inflation and real interest rates,investors are recalibrating portfolios.Sovereign wealth funds favo
2、ur fixed income and private debt,while Emerging Markets with solid demographics,political stability,andproactive regulation,particularly India,have emerged asprime investment destinations.Theme 2 15Finding value in private assetsSovereign wealth funds continue to find private assets appealing,but pe
3、rformance disparities have prompted investors to exercise more judicious selection.Infrastructure,especially renewable energy,has emerged as the preferred sector.Evaluating debt metrics and prioritising organic growth over leverage-dependant returns have become critical components in investment deci
4、sion-making.Theme 3 22Financing the future:sovereigns strategies foraccelerating the energy transitionIncreasing geopolitical tensions and climate concerns are highlighting the need for secure,sustainable energy supply chains,propelling renewables to the top of investors agendas.Sovereign funds and
5、central banks are prioritising green infrastructure investments and green bonds.Navigating the greenwashing terrain,investors are adopting an active stance,accepting development risks,and issuing green bonds to ensure authentic ESG alignment.Theme 4 29The next generation of development fundsThe rece
6、nt decade witnessed a wave of new and emerging development sovereign funds,eagerly seeking partnerships with more established counterparts.These nascent funds concentrate on helping to catalyse the energy transition andachieving social goals.To bridge capability gaps,they are leaning on external ass
7、et managers and,asthey continue to grow and mature,the demand for such expertiseis set to rise.Theme 5 36Golden opportunities:central banks seek stability amidcurrency challengesCentral banks looking to combat yield volatility and inflation risk see gold as a safe-haven asset.This spurred record gol
8、d purchases in 2022,a trend prevailing into the first quarter of 2023.While the US dollar retains global reserve currency supremacy,central banks are diversifying currency holdings,stirred by geopolitical uncertainties and attractive opportunities in Emerging Markets.Appendix 44Welcome 03Key metrics
9、 04Welcome03In 2023,sovereign investors find themselves navigating an altered macroeconomic environment,markedby surging inflation and higher real interest rates.Our first theme explores this change,spotlighting the impacts on portfolio construction and asset allocation.We observe anincreased affini
10、ty for fixed income assets,including private debt,andheightened interest in Emerging Markets,believed to offer potential benefits ina higher-rate environment.Among the Emerging Markets,sovereign investors have turned theirinterest to India.Theme 2 explores sovereign funds approach towards private as
11、sets,such as real estate,infrastructure,and private equity.Despite market volatility,these alternative investments retain their allure.However,apricing adjustment has underscored performance inconsistencies,prompting more discerning investment strategies.These strategies prioritise identifying top-t
12、ier managers and the most enticing transactions.Infrastructure,particularly renewable energy generation and distribution,emerges as a prominent sector.Building on these findings,Theme 3 explores how sovereign investors are helping catalyse the energytransition.The current energy crisis hasintensifie
13、d the focus on establishing secure,sustainable energy supply chains.Sovereign wealth funds prioritise direct investments in green infrastructure,while central banks are gradually increasing allocations togreen bonds.To counter greenwashing concerns,investors are proactively accepting development ris
14、ks and self-issuing green bonds.Theme 4 studies the emergent generation of sovereign wealth funds,established since 2012.We review their objectives and challenges,finding that most ofthese funds have development goals related to GDP growth,economicdiversification,and the energy transition.However,th
15、ey grapple with capability gaps vis-vis established funds.Tobridge these,they seek partnerships with experienced funds and are engaging external asset managers.Goodgovernance,clear objectives,and strategic partnerships are seen asthe bedrock for success forthis newgeneration of funds.Our final theme
16、,Theme 5,examines central banks responses toatumultuous macroeconomic andgeopolitical environment.We find an increasing inclination towards gold as a safe-haven asset,culminating in record gold purchases in 2022,continuing into Q1 2023.While the USdollar maintains its reign as the worlds reserve cur
17、rency,central banks are diversifying their currency holdings,elevating allocations toEmerging Market currencies toleverage the growth and diversification potential opportunities that these developing nations offer.WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixI am pleased to present o
18、ur eleventh annual study onsovereign investors.Initiated in 2013,this study has expanded in scope overtime.This year,it captures the viewpoints and opinions of142chief investment officers,heads of asset classes,and senior portfolio strategists from 85 sovereign wealth funds and 57 central banks.Coll
19、ectively,these institutions manage approximately US$21trillion in assets.Terry Pan Chief Executive Officer,Greater China,South East Asia and KKey metrics04Figure A Time horizon of investment objective(Years,SWFs only)Investment horizonsOver the course of 2022,investors continued toextend their inves
20、tment time horizons resulting in the sixth consecutive annual increase reported through this study.Sovereign wealth funds reported anaverage investment horizon of11.3years,versusthe 10.7 years reported in2022.Investmentsovereigns reported the largest rise,alignedto previous years,thoughliquidity sov
21、ereigns(characterised bytheir shorter time horizons)also reported a notable uptick thisyear.Sovereigns have increased investment horizons to facilitate a broader rangeof investments,including allocations toprivate assets.PerformanceWith the rapid rise of interest rates impacting fixed income returns
22、 and the listed asset price correction impacting equity returns sovereign investors were faced with achallenging year.Assuch sovereign investors reported negative returns to December 2022 for the first time sincestarting tracking performance inthis study,withaverage returns of-3.5%.Liquiditysovereig
23、ns reported the worst performance of the segments due to the highest allocation to fixed income andminimalexposure to private markets.Figure B Fund returns to 31 December(%,SWFs only)Sample size:2018=64,2019=65,2020=58,2021=55,2022=62,2023=73.Sample size:2017=52,2018=55,2019=71,2020=61,2021=55,2022=
24、57.Total ex CBInvestmentLiabilityLiquidityDevelopment7.88.59.49.710.711.313.46.88.19.911.312.29.210.511.011.812.212.43.93.0 3.02.93.34.38.16.8 6.88.99.59.8Total ex CBInvestmentLiabilityLiquidityDevelopment9.2-6.79.44.07.67.310.010.25.88.07.013.03.48.37.510.66.62.26.16.72.711.86.35.87.08.4-4.0-2.8-3.
25、5-3.22002020212022WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appendix2002120222023 05Asset allocationFixed income allocations have slightly rebounded after two years of decline,nowsitting at28%onaverage(up from 27%).Equityallocations have retreated slightly,downfrom 3
26、2%last year to 30%in 2023.Figure C Asset Allocation trends(%AUM,SWFs only)2020202019CashFixed IncomeEquities5745496529293033343027283329333026283230 Sample size:2016=57,2017=62,2018=63,2019=53,2020=78,2021=54,2022=74,2023=80.Illiquid AlternativesLiquid AlternativesDirect Strate
27、gic Investments92223323344440910WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixKey metrics06Key metricsFigure D Alternative investment asset allocation trends(%AUM,SWFs only)2020202019Private EquityReal EstateInfrastructure4.56.56.46.97.17.47
28、.57.46.58.17.78.79.08.39.28.02.82.13.22.73.63.74.97.1Sample size:2016=57,2017=62,2018=63,2019=53,2020=78,2021=54,2022=74,2023=80.Hedge funds/Absolute Return fundsCommodities2.01.62.02.13.13.93.12.50.60.30.61.01.00.51.31.1Sovereign wealth funds have continued toincrease allocations to alternative inv
29、estments which now stand at 27%(excluding direct strategic investments),withthe increase drivenby a steady rise inilliquid alternatives.Higher allocations toinfrastructure were anotable feature ofthepast 12months,with thisasset class now accounting for 7.1%ofportfolios,offsetting a decline inreal es
30、tate and flat allocations toprivate equity.WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appendix 07 07Sovereigns expect inflation to fall,butremain elevated relative to previous decade;sticky inflation is seen as the most serious risk to economic growth inthe near term.Funds are looking to r
31、eshape their portfolios to reflect the new macro environment.This includes a transition back to fixed income,with sovereign wealth funds making use of all fixed income asset classes and looking toincrease investments in private debt.Emerging Markets offer a range ofattractive investment opportunitie
32、s in both public and private markets;investors are focused on economies that offer favourable demographics,political stability,and positive regulatory initiatives,with India a priority.WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixTheme 1Building portfoliosin the new macroenvironment
33、08WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixIn last years study,inflation emerged as the most significant short-term risk to economic growth,afinding reiterated this year(figure 1.1).Figure 1.1 Risks to global growth(%citations,total sample)Next 12 monthsNext 10 years What do you
34、see as the major risks to global economic growth in the next year?What are the major risks for the next 10 years?Sample size:137.InflationRising geopolitical riskTight(er)monetary policy/high interest ratesSupply chain challengesImpact of climate change on environment/rise in natural disastersChina
35、market shocksCost/economic impact of the energy transitionHigh government debt levelsResource scarcityIncreasing cyber-attacksChanging demographicsWealth inequalityPolitical populism83727969375036428362636262925482334202847I dont believe we are going back to interest rates atzero.You must
36、 now take that into account inyour models when making investments.Investment sovereignMiddle East 09WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixA year ago,high inflation was a novel phenomenon,with uncertainty about its persistence.However,asthe situation clarifies(figure 1.2)ourres
37、pondents largely agree that,despite falling,inflation is likely to remain elevated compared tothe previous decade due to:1.Supply chain disruptions and restructuringsin response to the pandemicand Ukraine conflict,2.Demographic shifts as baby boomers retire,leading to tight labour markets indevelope
38、d countries,3.“Greenflation”stemming from climate change and decarbonisation goals and initiatives.Many respondents see inflation risk tilting tothe upside.A central bank in the West noted,“Ithinkthat inflation will not return to where itwas inthe last five years.The main question mark ishow sticky
39、it is.In the past it has been surprising howpersistent inflation can be.”As real interest rates reach levels unseen since 2007 amid one of the fastest hiking cycles inrecent memory,over half of sovereign wealth funds and central banks expect these rates toremain at these levels or increase further o
40、verthe next two years(figures 1.3 and 1.4).Thishas led sovereigns to reassess long-term macro assumptions,as many believethecheap money era has ended,and ultra-low andnegativerates are history.An investment sovereign in the Middle East summarised,“I dont believe we are going back to interest rates a
41、t zero.You must now take that into account in your models when making investments:leverage is going to cost more,andthat is going to affect your cash flows andinternal rate of return forecasts.”Figure 1.2 Expectations for inflation in Developed Markets in next 2 years(%citations,total sample)Inflati
42、on will remain high(at current levels or higher)Inflation will fall but remain higherthan previous decadeInflation will return to levelsof previous decadeInflation will fall below levels of previousdecade or we will have deflation7016122 What is the more likely scenario for inflation over the next t
43、wo years in Developed Markets?Sample size:132.Figure 1.3 US 10-year real interest rate(%)8.019829.07.06.05.04.03.02.01.00.0-1.0720022007201220172022 Source:FRED.Figure 1.4 Expectations for real interest rates innext2years(%citations,total sample)Sovereignwealth fundsCentralbanks2825473833
44、29 How do you expect real interest rates to trend over the next twoyears?Sample size:113.Higher Unchanged Lower 10WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixRealigning portfolios amid a shifting landscape The challenges notwithstanding,rising interest rates have significantly boost
45、ed expected returns across fixed income and equities.“Expected returns are better than in many,many years,soIam more optimistic about the future”remarked an investment sovereign in the Middle East.“Thisisthe most aggressive hiking cycle I have ever experienced,and despite that,the global economy is
46、still very resilient.In my view,thisisgood for bonds,good for equities,and good in general forfinancial assets”added adevelopment sovereign also in the Middle East.This environment is encouraging investors toadjust allocation intentions,with fixed income rapidly rebounding after two years of decline
47、s and registering the highest net intention levels seen since the start of this study(figure 1.5).Someinvestors reported buying as much fixed income as possible within existing asset allocation limits,and were considering revising their framework to accommodate the new interest rate environment.“We
48、already bought as much fixed income as we could based on our asset allocation.We have also increased duration and now have one of the highest durations we have ever had,”said a development sovereign in the Middle East.While fixed income investments rise,sovereign wealth funds persist in augmenting a
49、llocations toprivate markets(figure 1.5).However,investorsare becoming more discerning in targeting these investments asubjectwe will explore further inTheme 2.Figure 1.5 Net allocation intentions by year(intentions to increase intentions to decrease)(%citations,SWFs only)Net increaseNet decreaseEqu
50、itiesFixedIncomeCashAbsoluteReturn fundsReal Estate(unlisted)PrivateEquityInfrastructureDirect StrategicInvestmentsCommodities-2618-2-15-17-12-18-4-7-23925335631 For each asset class,do you intend on increasing/maintaining/decreasing your strategic asset a
51、llocation(SAA)over the next 12 months?Sample size:77.200222023We already bought asmuch fixed income as wecould based on our asset allocation.We have also increased duration and now have oneof the highest durations we have ever had.Development sovereignMiddle East11WelcomeKey metricsTheme
52、1Theme 2Theme 3Theme 4Theme 5AppendixSovereigns rethink their fixed income strategies This years study reveals a shift in sovereign investors approach to fixed income investing.Notably,during the 2022 asset price correction,fixed income failed to provide protection,andsovereign investors with the hi
53、ghest exposure to fixed income were among the worst performers.While this may be ascribed to the second-order effects of non-standard monetary policy and ultra-low interest rates that artificially inflated fixed income,along with other assets(and may reverse in line with a more normal monetary polic
54、y),it has influenced how sovereign investors view the asset class.Fixed income is no longer seen as a“set and forget”portfolio for diversification purposes.Respondents are instead adopting a more tactical stance,utilising all available asset classes and believing that significant value can be added
55、toafixed income portfolio by actively rebalancing across different fixed income segments.“Youcanadd as much value to your fixed income returns by rotating to what is working and what has the highest possible return for risk as you can get from rotating around within public equity,”suggested a liabil
56、ity sovereign based in the West.Among alternative fixed income segments,Emerging Market debt and high-yield are the most widely held(figure 1.6).However,weobserved a strong appetite for private credit funds,with sovereign investors emphasising the favourable risk-return profile of the asset class an
57、d high liquidity levels.Sovereign investors also noted that holdings are transparent and generally offer good diversification within the fund,as most funds are large-scale and invest in a wide range of issuers.“You get great diversification through a single investment as the funds are huge,”saidadev
58、elopment sovereign in the Middle East.Historically,private credit has often been categorised as private equity by many sovereign investors.However,rising allocations mean that private credit is now being carved out as a distinct asset class,supported by a dedicated investment team.“In the last coupl
59、e of years,we have moved private credit into a separate asset class.This is an area where many funds have room for growing allocations as long as you have the risk appetite and you have access to the right managers,”saida liability sovereign based in the West.Figure 1.6 Types of alternative fixed in
60、come invested in(LHS)and most attractive to invest in now(RHS)(%citations,SWFs only)Which of the following types of fixed income do you invest in?How attractive do you see each of these for increasing allocations over the next 12months?Sample size:53.EM DebtHigh YieldReal Estate DebtAsset Backed Sec
61、urities/Structured CreditInfrastructure DebtDirect Lending/Private CreditBank LoansDistressed Debt6254347575762You can add as much valueto your fixed income result by rotating to what is working and what has the highest possible return for risk as you can get fromrotating around within pu
62、blic equity.Liability sovereignThe West 12WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixEmerging Markets gain traction:India leads amid rising rates Over the eleven years of this study,sovereign wealth funds sentiment to Emerging Markets has fluctuated.As Developed Markets asset price
63、s soared due to cheap money and negative real interest rates,many funds found little need to pursue the extra effort or risk associated with significant Emerging Market allocations.Consequently,most respondents maintained relatively low Emerging Market allocations.The normalisation of interest rates
64、 looks poised to disrupt the status quo,as this years study revealed a broadened appetite for Emerging Markets among sovereign investors.Respondentssought new sources of diversification and higher returns across emerging Asia,Latin America andAfrica(figure 1.7).Respondents commended Emerging Markets
65、 resilience amidst rapidly increasing interest rates a contrast to previous crises such as the 2013 taper tantrum indicating institutional strength has steadily improved over the last decade.Manycountries have made strides to provide astable investment environment.Respondents also highlighted the po
66、tential for sizable investments inappealing sectors,such as healthcare,education,and infrastructure,where Developed Markets face limited supply due to regulation or high competition levels.Respondents pointed to rising levels ofhealth insurance driving demand for new medical facilities.Meanwhile tec
67、hnology-based solutions were seen as important for delivering rapid improvements in education provision.Markets offering favourable demographics and agrowing middle-class,as well as those positioned to benefit from reshaped global supply chains,attracted attention.This includes increasing interest i
68、n Africa,particularly fromMiddle Eastern funds that initially invest across the MENA region before expanding into sub-Saharan Africa.“In the past seven years many of the fastest growing countries were African nations,and there are opportunities across health,agribusiness,and infrastructure”said oneM
69、iddle East-based investment sovereign.Figure 1.7 Change in regional allocations in next 12 months(%citations,SWFs only)NorthAmericaLatinAmericaEmergingEuropeDevelopedEuropeEmergingAPACDevelopedAPACMiddleEastAfrica2276288571573128857 For each region how do you expect this to cha
70、nge in 2023?Sample size:59.IncreaseSameDecreaseFigure 1.8 Expected performance of DM vs EM markets in next 3 years(%citations,SWFs only)Emerging Markets to outperformDeveloped MarketsSimilar levels of performanceDeveloped Markets to outperformEmerging Markets333829 What is your outlook for Developed
71、 Markets vs Emerging Markets over the next 3 years?Sample size:72.13WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixIndia exemplifies the attributes sought bysovereign investors.Viewed increasingly positively for its improved business and political stability,favourable demographics,regu
72、latory initiatives,and a friendly environment for sovereign investors,India has now overtaken China as the most attractive Emerging Market forinvesting in Emerging Market debt(Figure 1.9).A development sovereign based in the Middle East noted,“We dont have enough exposure toIndia orChina.However,Ind
73、ia is a better story now in terms of business and political stability.Demographics are growing fast,and they also haveinteresting companies,good regulation initiatives,and a very friendly environment forsovereign investors.”India is among a number of countries,includingMexico and Brazil,that are ben
74、efitting from increased foreign corporate investment aimed at both domestic and international demand through“friend-shoring”and“near-shoring”.Thiswas seen as helping fund current account deficits as well as support currencies and domestic assets including debt.Expectations for peaking inflation and
75、a completion of the Emerging Markets tightening cycle was also playing a role in this trend.Several EMs that saw an increase in their perceived fixed-income attractiveness,including Brazil,were widely expected to be overcoming inflation and to eventually stop tightening and start easing monetary pol
76、icy.Atthe same time important commodity countries including Brazil and Indonesia were seen as well placed for the green transition and electric vehicle revolution,and thus potentially an important source of diversification for sovereigns with more concentrated commodity revenue streams.Geopolitics a
77、lso accounts for the sharp decline inattractiveness of Russia over the past 12months(figure.1.9).The continuing appeal of Russian fixed income to a small minority ofsovereign investors can be accounted for by a lack ofdomestic sanctions and residual positive perceptions ofeconomic management.However
78、,these elements are now under considerable pressure because of the war effort,the possibility of secondary sanctions towards countries found to be aiding Russias war effort,and a potential G7oil price cap.Figure 1.9 Most attractive markets for Emerging Market debt(%citations,SWFs only)Which of the f
79、ollowing markets do you see as attractive for increasing your EM debt exposure?Sample size:41.20222023IndiaChinaBrazilSouth AfricaRussiaMexico3751South Korea6Indonesia2744 14WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixHeeding 2022s lessons for resilient portfol
80、ios The swift increase in interest rates and sharp correction in listed asset prices led most sovereign wealth funds to report negative returns for 2022,with portfolios heavily weighted towards fixed income and listed equities performing particularly poorly(figure 1.10).“Last year,diversification di
81、dnt really work so all assets underperformed,making it especially difficult”said a liquidity sovereign based in an Emerging Market.Although average sovereign returns in 2022 were negative,there was significant variation within these results.Common among better performers was recognising the risks po
82、sed byelevated asset prices and a willingness to respond with substantial portfolio changes.“Because of the way our fund was originally designed we had ahuge allocation to fixed income and we should have better appreciated the risks that this left us exposed to,”said one Asian investment sovereign.W
83、hen asked about the lessons from this challenging period and potential changes to theirportfolio construction approach,tworesponses stood out:1.those considering a broader range of inputs when building a portfolio(and reducing reliance on the traditional SAA approach);and 2 those demonstrating great
84、er flexibility and responsiveness to market conditions.Several sovereign wealth funds mentioned plans to give macroeconomic factors and geopolitical concerns more weight in decision-making.One Emerging Market-based liability sovereign revealed,“We need to think about our portfolio differently,with m
85、ore consideration of factors like inflation and geopolitical risk that may not have been taken into consideration when setting our original investment framework”.An Emerging Market-based investment sovereign shared this sentiment,“This year taught us that every cycle is different and historical anal
86、ysis is insufficient in todays fast-changing world.We are looking at how we can better use metrics such as expected returns to add rigour to our process.”Other investors emphasised the importance ofadapting to changing market conditions and adjusting strategies as needed.“Not just in 2022,but throug
87、hout the years,we have learned that there is no single approach that can help us navigate through the increasingly rapid changes in the underlying market environment”saidanAsian investment sovereign.In summary,the lesson from 2022 is clear:sovereign investors must be prepared to think differently an
88、d adapt quickly to shifting market conditions.The rapid pace of change in financial markets makes this more crucial than ever.Figure 1.10 Fund returns to 31 December(%,SWFs only)What has been your funds actual percentage return(at 31st December 2022)over the past year?Sample size:57.Total(SWFs)Inves
89、tment sovereignLiability sovereignLiquidity sovereignDevelopment sovereign-6.713.09.44.07.67.310.010.25.88.07.09.23.48.37.510.66.62.26.16.72.711.86.35.87.08.4-4.0-2.8-3.2-3.5We need to think about our portfolio differently,with more consideration of factors like inflation andgeopolitical risk.Invest
90、ment sovereignEmerging Markets2002020212022Private assets maintain theirappeal;sovereign wealth funds focus on investment selection as disparitiesemerge.Debt metrics are an increasingly important consideration;private equity funds are assessed on their ability todeliver organic growth and
91、 operational improvements,rather than a reliance onleverage for returns.Infrastructure leads private asset segments,with renewable energy generation and distribution especially attractive amid the global energy crisis.15WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixTheme 2Finding va a
92、ssetsin private 16WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixRising allocations to private assets has been a recurring theme over the years.Despite varying market conditions,sovereign wealth funds consistently increased allocations to realestate,infrastructure,andprivate equity,a t
93、rend that has persisted over the past year against avery different macroeconomic backdrop.Private assets remain appealing to sovereign wealth funds across all segments(figure 2.1).However,a valuation correction has revealed performance disparities among funds and assets,prompting investors to be mor
94、e selective,emphasising the identification of top managers and attractive transactions.“Valuations have come down so doing deals at the right price isnot as much of a challenge as before.The main challenge is to find attractive transactions and gaining access to top tier funds”said a Middle Eastern
95、investment sovereign.Figure 2.1 Attractiveness of asset classes for next 5 years(Score/10,SWFs only)How would you rate the attractiveness of the following asset classes over the next 5 years?(Score 1-10 where 10=very attractive)Sample size:80.InfrastructureFixed IncomePrivate EquityEquitiesReal Esta
96、teDirect Strategic InvestmentsHedge fundsCommoditiesCashTotalDevelopment sovereignsInvestment sovereigns7.26.76.56.46.36.15.24.64.07.87.06.55.65.66.65.24.44.47.17.37.57.36.26.86.35.35.1Liability sovereignsLiquidity sovereigns6.76.06.26.36.95.74.74.43.17.57.45.35.44.83.54.84.04.5 17WelcomeKey metrics
97、Theme 1Theme 2Theme 3Theme 4Theme 5AppendixAmong the different private asset segments,themost significant obstacle is securing deals andaccessing the best managers,particularly fornew and smaller sovereign wealth funds(figure 2.2).Over the past year,capital-rich sovereign wealth funds,such as those
98、funded byenergy reserves,have been well-positioned todevelop a robust pipeline and secure additional access to top-tier funds as other more capital-constrained investors have withdrawn.Smallerfunds emphasised the importance ofbuilding relationships and becoming reliable partners for their fund manag
99、er counterparts.They cited providing capital in challenging macro environments and making quick decisions on co-investment opportunities as ways to become attractive partners for top-tier managers.A Middle Eastern investment sovereign explained,“We are faster in our decision-making than some of our
100、peers which helps.Our ticket size compared to some of our peers is smaller,soourchallenge is accessing more desirable funds and building relationships.Performance varies widely,and accessing the top quartile becomes harder,especially with long-standing,high performing funds.”Most sovereigns investin
101、g in private assets employ a combination of direct investments,co-investments,and funds(figure 2.3),with direct and co-investments considered vital for reducing expense ratios.Sovereign wealth investors noted that fund investments were important for gaining access to the top co-investments:“Whenweal
102、locate capital to a PE fund,we expect them tooffer co-investment opportunities,whichis anessential part of the relationship,”saida MiddleEastern investment sovereign.Indeed,the quality of co-investments is often akey consideration when deciding on a manager as an Asia-based liability sovereign noted
103、:“Itscommon to get toknow a new fund by exploring a couple of their co-investment opportunities before weallocate tothe fund itself.”Figure 2.2 Challenges in private assets(%citations,SWFs only)SourcingdealsFinding qualityasset managersCompetition drivingdown returns496847424757262145 What are the c
104、hallenges in deploying capital in each asset class?Sample size:53.Real EstateInfrastructurePrivate EquityFigure 2.3 Current allocation to real estate,private equity,and infrastructure by structure(%citations,SWFs only)Roughly what percentage of your real estate,private equity and infrastructure inve
105、stments are currently allocated to the following structures?Sample size:46.TotalDevelopment sovereignInvestment sovereignLiability sovereignLiquidity sovereign49604728247Direct investmentsPooled investmentsCo-investmentsListed real assets18WelcomeKey metricsTheme 1Theme 2Theme
106、3Theme 4Theme 5AppendixPrivate asset debt evaluation comes into focus Most respondents say that debt levels in their private market investments have risen compared to three years ago(figure 2.4),making debt anincreasingly important consideration inprivate asset investment assessments asrates rise.Al
107、mosthalf of sovereign wealth funds report being dissuaded from recent real estate,private equity,and infrastructure deals due to unappealing debt structures(figure 2.5).Investors are now particularly cautious about highly leveraged dealsand thoroughly examine debt metrics atboth thefund and individu
108、al deallevels.Within private equity,sovereigns increasingly assess private equity funds to determine whether they create real value through organic growth or operational improvements,or if they rely onleverage to generate returns.AnAsian investment sovereign explained,“Whenanalysing a fund,we delve
109、into the cash flow and examine value creation.If most value stems from leverage,we consider it a significant risk in the current market.Organic growth or operational improvements are favourable,but leverage-driven value raises concerns.”When making direct investments and co-investments,respondents s
110、crutinise thepurchase structure and leverage amount.Theypay close attention to debt repayment terms and whether interest rates are fixed or variable.A Middle Eastern development sovereign stated,“We definitely examine debt levels;its a crucial KPI right now.In co-investments where we would be a bigg
111、er ticket size,we dig deeper,studyingthe buyout structure,leverage applied,interest rates,and whether theyre locked in.”Figure 2.5 Debt levels a barrier to making recent investments(%citations,SWFs only)Has the level of debt been the deciding factor when choosing to not make aninvestment in any of t
112、he following asset classes?Sample size:44.Real EstateInfrastructurePrivate Equity484349Figure 2.4 Debt levels in private asset investments compared to 3 years ago (%citations,SWFs only)How do overall debt levels in your private asset investments compare to 3 years ago?Sample size:44.Real EstateInfra
113、structurePrivate Equity5250453477369532914HigherThe sameLowerNot assessed 19WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixSovereigns look beyond offices in search of attractive diversificationReal estate is currently perceived to be less attractive than infrastructure and private equi
114、ty(figure 2.1,page 16),mainly due to challenges in the office and retail sectors(figure 2.6).Manysovereign wealth funds,heavily exposed to these sectors,seek diversification in more attractive sectors such as industrials,healthcare,and data centres.The reshoring and friend-shoring trend has boosted
115、demand for logistics spaces and warehouses,driving interest in the industrial sector.“We have considerable office exposure andaim to diversify by acquiring more residential and alternatives like self-storage and logistics,”said a Middle Eastern investment sovereign.While funds pointed to a desire fo
116、r increased diversification within their real estate portfolios,they also noted deals are generally opportunity led,with investments assessed on adeal-by-deal basis.Indeed,despite office sector challenges,some investors saw the current environment as an opportunity.A Western liability sovereign stat
117、ed,“Were increasing real estate allocations.The short-term office pinch will be followed byagradual return.The lack of construction andunderinvestment in the next two years willcreate better opportunities in 2024.”Figure 2.6 Most attractive segments for investing in real estate(%citations,SWFs only)
118、Please rank the following areas in terms of attractive investment options for real estate.Sample size:53.Region basedTotalAsiaEmerging MarketsMiddle EastWestIndustrial75%75%63%83%76%Medical/Health Care68%50%75%67%71%Data Centres61%75%63%83%53%Residential52%75%38%50%50%Leisure/Hotels/Resorts48%50%75%
119、83%35%Office36%63%38%17%32%Retail21%25%38%0%21%Self-Storage18%13%13%17%21%80%60%40%20%0%Sovereigns are also exploring opportunities inalternative real estate sectors,such as healthcare and data centres,ranking them second and third in attractiveness.The pandemic underscored healthcare infrastructure
120、s importance,prompting investments in hospitals,clinics,and assisted living facilities.Meanwhile,data centres have gained popularity due to the growth of digital technologies and remote work.Sovereign wealth funds,navigating the evolving real estate landscape,strive to balance risk and return by div
121、ersifying their portfolios and exploring new investment opportunities.AnAsian investment sovereign said,“We always aim tooptimise our portfolio and risk-adjusted returns.Diversification is crucial,and were open to exploring new sectors and asset classes thatoffer attractive returns and help us achie
122、ve our investment objectives.”20WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixSovereigns paddle out for agreen energy wave Infrastructure is considered the most attractive private asset segment(Figure 2.1,page 16).For some time,across different categories of infrastructure,sovereigns
123、have preferred monopoly-like infrastructure assets with multi-decade contracts providing long-term,predictable revenues and with implicit or explicit inflation pass-through overseen in a mature regulatory environment.These include major airports,toll roads,power networks,water supply,and electrical
124、grids all critical infrastructure difficult to replace.Offering long-term stable returns,these assets align well with sovereign wealth funds long-term focus.Traditionally,renewable energy generation hasnt fit the monopolistic category,asenergy producers are typically price-takers.Nevertheless,sovere
125、ign wealth funds now view renewables as the most attractive infrastructure sector(figure2.7).ThewarinEurope and energy crisis that followed has triggered a global surge in renewable infrastructure demand,with governments offering long-term price commitments in return for investment.Somesovereigns no
126、te the potential for more revenue and valuation certainty,perhapsstabilising their return profile and bringing these assets closer to those infrastructure characteristics they find attractive while meeting their climate goals.Sovereigns based in Emerging Markets and the West had the most appetite fo
127、r investing in renewable energy generation.In Emerging Markets additional energy generation infrastructure was often identified as a priority while many Western funds noted that their country had been hard hit by the energy crisis.A Western liability sovereign commented,“Therecent energy crisis has
128、heightened global consciousness about energy consumption,prompting economies to seek alternative energysources.This will attract investment inrenewable and green infrastructure.”Figure 2.7 Most attractive segments for investing in infrastructure(%citations,SWFs only)How attractive do you see the fol
129、lowing types of infrastructure over the next five years?Sample size:57.80%60%40%20%0%The recent energy crisis has heightened global consciousness about energy consumption,prompting economies toseek alternative energy sources.This will attract investment in renewable and green infrastructure.Liabilit
130、y sovereignThe WestRegion basedTotalAsiaEmerging MarketsMiddle EastWestRenewable energy generation81%70%86%71%85%Energy transmission and supply65%50%71%71%67%Water&wastewater50%44%71%57%45%Public transport,roads and rail45%50%57%57%39%Ports(sea and air)35%22%33%67%33%Telecoms and communications31%38
131、%33%67%23%Conventional energy generation30%30%71%29%21%21WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixPrice correction positive forcurrent PE vintagesThe price correction in listed markets is gradually affecting valuations within private equity(PE)and venture capital(VC),highlighting
132、 discrepancies in mark-to-market policies.Despite questions surrounding real performance levels,sovereigns remain enthusiastic about PE investing the second most attractive asset class(figure 2.1,page 16).Around one third ofrespondents believe the listed markets price correction is positive for PE(f
133、igure 2.8)since current investments are made at better prices,emphasising the importance of investing across multiple cycles to mitigate pricing risk.An investment sovereign from the Middle East explained,“When it comes to PE and VCreturns there are lean and fat years.Duringmore challenging periods
134、a shake-out occurs,returnsfall,and the asset class faces scepticism.However,the following years are often anexcellent time to invest fresh capital.”Despite the positive sentiment for private equity,rising rates and debt concerns make identifying top performers more critical than ever.A North America
135、n liability sovereign noted,“EBITDAmultiples for private equity transactions are similar to S&P 500 EBITDA multiples,offering noprice advantage.Skilful application is required to generate alpha in your portfolio,covering fees and leaving value for our(pooled)customers.”Has the 2022 price correction
136、in listed markets impacted your appetite for private equity?Sample size:42.Figure 2.8 Impact of price correction in listed markets on attractiveness of private equity(%citations,SWFs only)More attractive 34%The same 53%Less attractive 13%22Theme 3WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5
137、AppendixGeopolitical tensions and climate change highlight the need for secure,sustainable energy supply chains,elevating renewables in investors priorities.Sovereign funds and central banks favour direct green infrastructure investments and green bond allocations to align withtheir objectives.To ta
138、ckle greenwashing,investorsadopta proactive stance,embracing development risks and issuinggreen bonds,ensuring genuine ESG alignment.sovereigns strategiesFinancing the future:for acceleratingthe energy transition23WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixOver the course of this e
139、leven-year study,the ascendance of environmental,social,and governance(ESG)factors for sovereign wealth funds has been meticulously documented.Although our 2017 study saw sovereigns divided onthe case for ESG,by 2019 and 2020,ESG had garnered momentum,chieflyinthe realm of climate-resilient portfoli
140、o management.Since then,ESG has captured the attention ofagrowing number of investors.2023 marks the sixth(and largest)annual rise in the proportion of sovereign wealth funds and central banks implementing ESG policies,rising from 46%in2017 to 79%in 2023 for sovereign wealth funds,and from 11%to 59%
141、for central banks(figure 3.2).The mounting significance of ESG for sovereign investors initially stemmed from climate-driven long-term risks to returns improving returns and reducing risk were primary motivations foradopting ESG policies in 2020.The emphasis has since shifted due to the intensifying
142、 necessity of environmental action.Russias invasion of Ukraine has underscored the criticality of energy security,further compounding the urgency.Investors assert that the ramifications of climate change(66%of citations)and the financial cost of the energy transition(53%of citations)represent two of
143、 the three most significant risks to global growth over the next decade,with only rising geopolitical risk amassing more citations(figure1.1,page 08).Sovereign wealth funds are now more resolute than ever in their ambitions tofund the energy transition.Stepping up funding for the energy transition t
144、hrough afocuson direct investment andgreen bondsSovereign wealth funds now constitute asubstantial share of global assets.Whileseveral SWFs treat their size as state secrets,estimatedtotal AUM of state-owned investors in 2022 was US$32trn.1 Withheightened public awareness,SWFsface increased demands
145、for accountability and global leadership.As an Emerging Market-based development fund explained,“Weunderstand that global markets and foreign investors seek aframework from sovereign wealth funds onESG.These are risks we consider with allour new investments”.Thisincreased accountability extends beyo
146、nd sovereign wealth funds,asanAsian central bank remarked,“Webegan toinvest in ESG stocks in 2019 tomeetthe demandforpublic accountability”.Over two thirds of investors agree that sovereign wealth funds and central banks can significantly contribute to financing the energy transition(figure 3.1).Thi
147、s role is substantiated by another consecutive annual increase in investors particularly central banks implementing ESG policies(figure 3.2).1 Global SWF Global Tracker:https:/ 3.1 SWFs/CBs can play a significant role in financing the energy transition (%citations,total sample)To what extent would y
148、ou agree with the following statement:SWFs/CBs can play a significant role in financing the energy transition?Sample size:115.AgreeNeutralDisagree672310Figure 3.2 Organisations with an ESG policy(%citations,total sample)Do you have an ESG policy?Sample size:140.20023Sovereign wealth funds
149、Central banks7946606411203859 24WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixAs the energy transition takes precedence,investors almost unanimously concentrate ongreen infrastructure and green bonds.Sovereign wealth funds with extended investment horizons increasingly consider direct
150、 investments in green infrastructure as a means ofmaximising impact.A Middle Eastern investment sovereign commented,“Voting and engagement certainly help;however,the most impactful approach istoinvest directly and develop the infrastructure”.Investment,liability,and development sovereign wealth fund
151、s all deem direct investment ingreen infrastructure as the most crucial method forfinancing the energy transition(figure 3.3).Direct investment frequently offers a more dependable means of tracking progress toward sustainable objectives,along with more influence and leverage to achieve those objecti
152、ves.“Investing in the infrastructure directly can have the greatest impact.The companies can directly monitor the progress and we dont have to rely on external sources for ensuring that the money is being optimised”stated a Western investment sovereign wealth fund.Conversely,due to reserve portfolio
153、 liquidity constraints,central banks primarily focus on green bonds.One Asian central bank observed,“Green bonds are a wonderful way in which we can contribute to having a sustainable environment by investing in green projects”,encapsulating the role green bonds can play ascentral banks become more
154、active investors.Figure 3.3 Importance for financing the energy transition(Score/10,total sample)How important are the following(out of 10 where 10=very important)for financing the energy transition?Sample size:88.Investing in green bondsInvesting in green infrastructure directlyIncreasing investmen
155、t to specialist asset managersVoting and engagementCentral banksInvestment sovereignLiability sovereignDevelopment sovereignLiquidity sovereign7.77.27.46.86.97.96.67.15.58.26.48.25.49.36.56.84.86.57.56.0Green bonds are awonderful way in which we can contribute to having a sustainable environment by
156、investing in green projects.Central bankAsia 25WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixThe rise of green bonds and mitigating greenwashing concernsGreen bonds are emerging as a means forliquidity-constrained investors to participate ingreen projects,with central banks,in particu
157、lar,increasing their allocations.In 2019,a mere 28%ofcentral banks had invested in green bonds,whichgrew to 42%in 2021,and now,over two-thirds(69%)of central banks maintain investments ingreen bonds(figure 3.4).For some central banks,this is a direct outcome of heightened emphasis on ESG,as one West
158、ern central bank remarked,“We have invested ingreen bonds since last year.It was part ofour renewed commitment to ESG”.Conversely,for others,green bond allocations were notnecessarily the result of a direct mandate but rather met liquidity,credit,and risk-return requirements.This was echoed by both
159、a Western central bank and one based in Emerging Markets.The increased prevalence of green bond issuance leads to greater liquidity and lower greeniums,with green bond performance posing less ofachallenge than other factors,resulting in the overall increase in central bank uptake(figure 3.4).Despite
160、 a dip in global green bond issuance in2022 following a record high in 2021,themarket isexpected to continue its growth trajectory,driven by heightened policymaker action.Forinstance,the EU plans to issue up to 250 billion in green bonds by the end of 2026 to finance its NextGenerationEU,whichsuppor
161、ts the blocs economic recovery and green development.2 The Climate Bonds Initiative contends that green bond issuance must reach at least US$5 trillion per year by 2025 to substantially address climate change risks,3 representing an almost tenfold increase from 2021s record issuance of over US$500 b
162、illion.Public commitments are also being made bysovereign wealth funds.Some have even contributed to green bond issuance themselves,with 12%having issued their own green bonds and an additional 18%considering doing so.However,with the growing interest in green bonds comes the concern of reputational
163、 risk andgreenwashing.“Liquidity and loose definitions still loom as an issue despite the market doubling,”remarked a Western central bank,“Lets not pretend those issues are solved.Several issuances simply dont qualify as a viable investment let alone as green.”Investors,therefore,seekestablished na
164、mes to minimise reputational risks and guard against greenwashing.As one central bank in the West noted,“One risk we are mindful of is reputational risk financing projects that turn out to be greenwashing we try to stick toverified names and verified projects to minimise this reputational risk of in
165、vesting in something thatisnt actually green.”2 https:/commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/nextgenerationeu-green-bonds_en3 https:/ 3.4 Investing in green bonds(%citations,total sample)Central banksSovereign wealth funds4269384420212023 Are you currently
166、 investing directly or indirectly in any of these bonds?Sample size:111.26WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixTackling greenwashing and aligning ESG objectives In a broader context,concerns about greenwashing ranks as the most significant challenge of ESG investing among sov
167、ereign wealth funds and central banks this year,with45%of investors citing it as aconsiderable challenge and only 11%deeming it anon-issue(figure 3.5).This challenge has increased in significance,rising from the third-largest challenge in 2022.A Middle Eastern investment sovereign wealth fund remark
168、ed,“Thereis alack of transparency around how to classify ESG products theissueof greenwashing is still too high,whichisareputational risk for investors”.Greenwashing concerns have consistently high citations across sovereign segments compared toother challenges.Investors are increasingly worried abo
169、ut implementing their ESG policies amid growing accountability and the need toensure their actions are both impactful andgenuine.A clear correlation exists between the size ofsovereign wealth funds and greenwashing concerns 60%of small sovereign wealth funds(AUM$100bn).Thisdisparity stems from small
170、er funds lower internal capabilities and reliance on external managers,data providers,andrating agencies,to monitor investments,withone small Asian sovereign noting,“Wedont have the resources needed to separate the opportunities from thegreenwashing activities”.Larger sovereign wealth funds internal
171、 capabilities allow for greater confidence in green activities.Apart from greenwashing concerns,otherchallenges are primarily driven by external factors rather than internal capabilities.Qualityofdata/ratings and lack of regulatory standards persist as top challenges year-on-year,with 38%and 32%ofin
172、vestors identifying them assignificant challenges,respectively.As sovereign wealth funds develop their ESG capabilities,they become more concerned aboutexternal data and providers toensure investments are genuinely green.To mitigate some of these concerns,directinvestment in private markets is often
173、 the preferred route to access long-term energy transition commitments.For example,oneinvestment fund inthe Middle East revealed that investing directly allows for greater control and alignment to objectives.Renewable energy emerges as the most attractive area,with all sovereign wealth funds with ES
174、G objectives considering it a priority for investment(figure 3.6).Coupled with this,infrastructure investors are finding attractive sub-sector opportunities in renewable energy development and energy storage as discussed in Theme 2(figure 2.7,page 20).The alignment of renewable energy infrastructure
175、 investment with both investment objectives and return requirements of sovereign wealth funds offers promising prospects for financing the energy transition ifcommitments are fulfilled.Figure 3.5 Challenges of ESG investing(%citations,total sample)Concerns about greenwashingQuality of data/ratingsLa
176、ck of clear regulatory standardsMeasuring impact/outcomesLack of internal resources/expertiseInsufficient liquidity or supplyof investmentsImpact on risk/return objectivesBuy-in from management/organisation leadersBuy-in from beneficiaries/publicRank in2022323522295475945584647
177、44723845 How significant are the following challenges in relation to ESG investing?Sample size:122.Significant challengeModerate challengeNot a challengeRenewableenergyEnergystorageElectrifiedtransportSustainablematerialsElectrifiedheat56Figure 3.6 Attractiveness of
178、energy transition investment in terms of investment priorities(%citations,SWFs only)AttractiveNeutralNot attractive How attractive are the following areas of energy transition investment in terms of your investment priorities?Sample size:58.27WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appe
179、ndixGreenfield vs.Brownfield:Building confidence in renewable energyinvestmentsIn the current context,investors express apreference for greenfield investments over brownfield projects,with more than twice asmany infrastructure-investing sovereign wealth funds prioritising greenfield projects overbro
180、wnfield ones(figure 3.7).Although brownfield projects,which involve investing in existing facilities and infrastructure that often already comply with local codes,presentlower development risk and more predictable revenue streams than greenfield investments,sovereign wealth funds currently prioritis
181、e greenfield investments to ensure greater control and influence from the beginning of the process.A development sovereign wealth fund explained,“We prioritise greenfield projects because we can participate from the beginning ofthe process and can shape them according toour preferences.”A developmen
182、t sovereign wealth fund basedinAsia echoed this statement,stating,“Themajority of our projects are greenfield because there is a vast scope of improvement inthese,and we can properly assess and plan all the risks and returns.”An infrastructure investor based in Asia who prioritised brownfield projec
183、ts said that they were exploring opportunities forlarge greenfield investments with attractive project structures due to difficulty in finding tangible investment opportunities.Greenfield projects allow investors to gain confidence that their investments align with their objectives by exerting great
184、er influence throughout the process,albeit while taking on development risk.This approach necessitates extensive experience in infrastructure,with sovereign wealth funds prioritising greenfield projects most commonly based in the West and typically having greater exposure to more developed infrastru
185、cture markets.Sovereign wealth funds in the Middle East prefer brownfield while most investors inAsiaandEmerging Markets have nopreference.While investment in renewables is necessary,decarbonising existing assets is crucial forreaching net-zero global targets,emphasisingthe need for both brownfield
186、andgreenfield infrastructure investments.Consistent with broader private market investments,sovereign wealth funds tend toinitially seek green infrastructure opportunities in their home market or region.91%ofsovereign wealth funds investing in green infrastructure have done so in their home market,a
187、 trend consistent across regions(figure 3.8).Investing inhome markets often aligns with the development objectives of sovereign wealth funds,as exemplified by early-stage investments from several European sovereign wealth funds in Northvolt,a green battery manufacturer inSweden.Figure 3.7 Prioritisa
188、tion for greenfield vs brownfield investments(%citations,SWFs only)TotalsampleWestAsiaEmergingMarketsMiddleEast6020433356206040 Do you prioritise greenfield or brownfield projects?Sample size:44.Figure 3.8 Current investments in green infrastructure(%citations,SWFs investing in green infr
189、astructure)Green infrastructurein home marketGreen infrastructurein Developed MarketsGreen infrastructurein Emerging Markets915938 Are you currently investing in any of the following?Sample size:34.BrownfieldGreenfieldNo preference80%60%40%20%0%Region basedWestMiddle EastAsia91%83%100%68%50%40%36%67
190、%20%28WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixHarnessing expertise to boost green investmentsAs noted in the 2019 study,the most significant obstacle for sovereigns investing in infrastructure is sourcing deals,with one-fifth citing this as a challenge,a finding that holds true
191、this year(figure 2.2,page 17).For sovereigns seeking toinvest in green infrastructure,thishurdle iseven more pronounced.A liability sovereign inthe West stated,“Sourcing deals andinvestment opportunities that align with ourESG policy isthe main challenge we face when funding green infrastructure.”Ma
192、ny investors also grapple with a lack ofknowledge in green infrastructure orinsufficient internal resources.Eager to partake in financing the energy transition,theyrequire support in project execution,often turning to asset managers for assistance.Aliability sovereign inthe Westcommented:“Assetmanag
193、ers have theexpertise needed to execute these projects and attract investments.”Investors believe that asset managers can provide valuable advice on project structure,risk analysis and management,and expert execution,thereby helping deliver financing togreen projects.Asone central bank in the West o
194、bserved,“Assetmanagers can help infinancing and delivering the green projects on alarger scale.Their expertise helps in execution aswell as attracting investments for the projects”.Inresponse to the mounting urgency to accelerate energy funding,there is a palpable appetite among sovereign wealth fun
195、ds and central banks for green project investments.Although greenwashing concerns persist,asset managers can play acritical role in offering leadership,guidance,andultimately,expediting the energy transition formany investors.Figure 3.9 Role of third parties/asset managers in delivering financing to
196、 green projects(Number of citations,total sample)What role can third parties/asset managers play in delivering financing to green projects?Sample size:48.Attractinginvestors(12)Analyse andmanage risks(11)Advice on project structure(9)Productdevelopment(5)Mobilise capital(4)Ensuringreturns(3)Expertis
197、e in execution(8)Acceleratethe process(4)Lead byexample(2)Ensuringutilisation(2)Technicalassistance(1)Engagewithbroaderinvestors(1)Technologybest practices(1)Find goodsolutions(1)Provide bestopportunities(1)Provideappropriatedisclosures(1)Identifysources offinancing(1)Guidance ondeployment(1)Asset m
198、anagers have the expertise needed to execute these green projects andattract investments.Liability sovereignThe West 29Theme 4The next generation of development fundsWelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixThere has been a surge in new sovereigns over the past decade.Thesefunds
199、are looking to partner with their more established peers,with strong governance crucial in helping to facilitate these relationships.The new generation of sovereigns aretypically development focused,withenergy transition and social objectives.However,formally defining these objectives is a challenge
200、 asisbuilding trust and transparency around those objectives.External asset managers are being used to overcome capability gaps,with these requirements expected to increase asthese new funds grow and mature.30WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixThe last decade has seen a sur
201、ge in new sovereign wealth funds.Themajority of these funds have been established in Emerging Markets,with Africa emerging as a hotspot and accounting for 11 of the 27 funds established since 2012(Figure 4.1).The latest generation of sovereign wealth fund istypically development-focused withobjectiv
202、esthat include GDP growth,economic diversification and the energy transition.However,these funds often have capability gaps in comparison to their more established global peers and to close these gaps,many are looking to learn from more experienced funds and tap into the skills andknowledge offered
203、by asset managers.Figure 4.1 New sovereign wealth funds since 2012 Source:IFSWF.Country with new SWF since 2012 LATAM:4Africa:11ME:1Europe:4APAC:731WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixGovernance crucial for building partnerships with other sovereignsWhen assessing their own
204、capabilities,the new generation of Emerging Market-based SWFs typically see themselves as lacking in a range of key areas including investment strategy,riskmanagement,governance and operational capability(figure 4.2).At the same time,manyhave been set up with transparency and ESG at their core and i
205、n these areas are often ahead of some of their more established peers.Nearly all of the new funds we spoke to for this years study said that they were looking tolearn from their more established peers,andorganisations such as the International Forum of Sovereign Wealth Funds(IFSWF)wereseen asinvalua
206、ble for this process.“Wehavepartnered with the IFSWF to develop an investment framework and understand best practices intheindustry.We also collaborate withsovereignfunds on investments inareas such asinfrastructure,technology,andhealthcare.These partnerships help us access new opportunities and gai
207、n knowledge from other organisations”revealed one such fund.“We have adopted the IFSWF Santiago principles on governance and sought help fromlarger SWFs to help us build our objectives”saidanother.More established funds were keen to highlight the importance of governance for developing these partner
208、ships.“If new SWFs look to us for a partnership or for outside investment then governance is key.They must take care to avoid any red flags such as employees with links tocorruption or criminal activity”said one MiddleEast-based development sovereign.Please assess the following based on your capabil
209、ity in these area(scale 1-10,where 10=very capable)Sample size:18.Above global averageBelow global averageFigure 4.2 Assessment of capabilities(Score/10,SWFs with development objectives only)We have adopted the IFSWF Santiago principles on governance and sought help from larger SWFs to help us build
210、 our objectives.Development sovereignEmerging MarketsTotalAsiaEmerging MarketsMiddle EastWestPeople&talent8.28.37.78.38.3Investment strategy8.08.86.78.77.9Risk management7.78.36.08.08.0Governance (reporting,sovereign status)7.89.06.07.78.0Operational capability (systems,processes)7.88.86.38.37.6ESG7
211、.36.88.05.38.0Transparency7.99.38.06.08.0 32WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixSetting the right objectivesJust over half of all sovereign wealth funds have development objectives within their mandate with this rising to 70%for funds based in the Middle East(figure 4.3).Mor
212、e mature development sovereigns have traditionally prioritised economic growth and diversification,as a development sovereign based in the Middle East explained:“Our original objective was to drive development in non-energy sectors.Thegoal was to drive more employment opportunities in alternatives a
213、nd also increase the wealth of our economy.”Interestingly,as these funds start to mature these objectives often start to shift,with many now also focused on driving technological development and the energy transition.“We are looking at the different sectors within technology and where westand in ter
214、ms of supply and demand.Whenthere is a massive mismatch,such as in gaming,weare looking tobuild national champions”said adevelopment sovereign based in the Middle East.This view was echoed by a development sovereign based in the West“Our first objective is now focused on technological development.Th
215、e second most significant objective is energy transition.Accordingly,we are investing in renewable energy sector for green and sustainable energy.”Rather than economic growth,the new generation of development sovereigns is much more likely to be focused on the energy transition from the outset as we
216、ll as social objectives such as health and education(figure 4.4).Without huge energy reserves many do not have the financial resources to drive a fundamental shift in the makeup of the local economy(as has been seen in some Middle Eastern markets).Instead,they are looking to help direct investment t
217、owards important parts of the economy that may be underserved or neglected by other types of investors.“Our mandate is firstly to deliver socio-economic projects for our region”revealed one Emerging Market-based development fund”.Many of these funds are still focused on building up capital and many
218、have yet to fully formalise their objectives.This was reflected in nearly 9in 10 respondents based in Emerging Markets saying that defining their development objectives was a challenge,including a quarter that said this was very challenging(figure 4.5,page 33).Even among long-established funds the a
219、bility to clearly define development objectives was regularly cited as a challenge,with the exact goals of a fund often emerging organically and changing over time.Whatever those goals might be,funds agreed on the importance ofestablishing objectives that are well aligned with governments own priori
220、ties and can also survive future changes in political leadership.Moregenerally,conflict with the government isseen as one of biggest barriers to successfully meeting long-term development goals.Figure 4.3 Fund has development objectives(%citations,SWFs only)What are the development objectives of you
221、r fund?Sample size:37.Figure 4.4 Development objectives of fund(%citations,SWFs only)80%60%40%20%0%TotalAsiaEmergingMarketsMiddleEastWest5263637038 Does your fund have any development objectives?Sample size:81.Region basedTotalAsiaEmerging MarketsMiddle EastWestEnergy transition65%43%67%57%79%Employ
222、ment59%71%44%86%50%GDP growth57%71%44%86%43%Social objectives(e.g.health,education,diversity)57%71%56%14%71%Economic diversification54%57%22%100%50%Development of capital markets49%71%33%71%36%Drive technology/skills46%43%33%86%36%Encourage private investment43%29%33%71%43%33WelcomeKey metricsTheme
223、1Theme 2Theme 3Theme 4Theme 5AppendixFigure 4.5 Development challenges by region(%citations,SWFs with development objectives only)How challenging do you find the following?Sample size:31.Very challengingModerately challengingClearly defining development objectives Aligning investments with developme
224、nt goals Managing and engaging with stakeholders Building trust and transparency TotalAsiaEmerging MarketsMiddle EastWest19%55%17%0%25%63%14%57%20%80%16%65%0%67%0%63%29%71%30%60%16%61%0%50%13%75%29%71%20%50%23%68%17%50%38%50%0%100%30%70%34WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appendix
225、Balancing return and development objectivesAs economies develop,sovereign wealth funds that have been established to focus ondevelopment are often increasingly tasked with delivering returns.Other funds are set up with this dual focus from the outset as one development sovereign from the West explai
226、ned,“Our mandate is for commercial returns,but also to generate economic impact.Each of our investments needs to have some benefit there in terms of job numbers,wages,or contribution to GDP but our overall performance is judged also by our returns.”These twin objectives often lead to challenges as f
227、unds are tasked with balancing competing demands that are not always aligned.Justunder athird of sovereign wealth funds with development objectives said that their return objectives sometimes conflict with their development objectives(figure 4.6).Notably,83%of funds based in the Middle East identifi
228、ed this conflict and this is a region where a shift in the balance of objectives from development to returns has proceeded rapidly.One development sovereign based in the Middle East highlighted an example of this conflict noting that they might be asked to step in if an IPO on the local stock exchan
229、ge was struggling to get underwritten:“Insome cases there is a large institutional tranche and there is a desire to show that market is active and there is liquidity.However,this might not be an investment we would necessarily make from areturns perspective.”This challenge is compounded by developme
230、nt objectives often being hard to quantify and measure.Transparency around this issue is seen as important for building trust and is something that funds in the Middle East said they were more likely to struggle with(figure 4.2,page 31 and figure 4.5,page 33).Building in transparency from the outset
231、 was seen as an important way to mitigate this challenge,with one West-based development sovereign providing an example of this process“We track the economic impact of our investments through a survey of the companies we invest in.This is then collated into a public report.Its not perfect but its im
232、portant part of our process to see if we are meeting our objectives.”Figure 4.6 Return objectives can conflict with development objectives (%citations,SWFs with development objectives only)Do your return objectives ever conflict with your development objectives?Sample size:29.YesNoTotalAsiaEmergingM
233、arketsMiddleEastWest960871790Our mandate is for commercial returns,butalso to generate economic impact.Each of our investments needs tohave some benefit there in terms of job numbers,wages,or contribution to GDP but our overall performance is judged alsoby our returns.Development sovereig
234、nThe West 35WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixDeveloping partnerships to overcome capability gapsTo help overcome the challenges they face most ofthe newer set of SWFs are engaging with external asset managers.Initially,assetmanagers are often asked to help manage the liqu
235、id portion of assets held prior to deployment and to generate returns to fund the cost of running the organisation.However,the level of support generally increases as funds scale up and their investment needs become more complex(figures4.7 and 4.8).“We have used external managers to help construct a
236、 portfolio that meets our goals and objectives.Thisincludes managing risk through diversification and byusing appropriate hedging strategies”saidoneAsianinvestment sovereign.More established funds highlighted that asset managers can play a valuable role by helping them to meet their development obje
237、ctives.These respondents noted that by building relationships with external managers they had helped foster the development of the local investment industry and capital markets.Thisinturn was seen as helping attract additional investment and reducing the reliance on the sovereign wealth fund as a so
238、urce of capital.Interestingly,this is an area where newer funds are perhaps yet to recognise these opportunities only 33%of SWFs based in Emerging Markets identified encouraging private investment asone of their objectives,compared to 71%of those based in the Middle East.The surge in new SWFs in the
239、 last decade highlights the growing importance of these funds in delivering development in Emerging Markets.Good governance and setting the right objectives are likely crucial for their success.While challenges remain,partnerships with other sovereigns and asset managers are helping these funds clos
240、e capability gaps and achieve their goals.Figure 4.7 Work with external asset managers (%citations,SWFs with development objectives only)In which ways do you work with external asset managers?Sample size:20.Figure 4.8 Ways that sovereign wealth funds work with external asset managers (%citations,SWF
241、s with development objectives only)80%60%40%20%0%TotalAsiaEmergingMarketsMiddleEastWest9283331325 Do you currently work with external asset managers?Sample size:32.YesNo but consideringNo and not consideringWe have used external managers to help construct a portfolio that meets ourgoals a
242、nd objectives.This includes managing risk through diversification and by using appropriate hedging strategies.Investment sovereignAsiaRegion basedTotalAsiaEmerging MarketsMiddle EastWestMandates75%75%67%80%75%Products(pooled funds/ETFs)75%25%67%100%88%Market information and trends65%75%67%80%50%Risk
243、 management50%75%33%60%38%ESG implementation40%25%33%40%50%Solutions(e.g.multi-asset)35%75%0%20%38%Benchmarking35%25%0%60%38%Training and seminars35%0%33%60%38%36Theme 5Golden opportunities:amid currency challengescentral banks seek stability WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appe
244、ndixCentral banks navigate volatile yields andinflation risks,turning togold asasafe-haven asset,resulting inrecord gold purchases during 2022,andcontinuing into Q1 2023.The US dollar remains dominant asthe worlds reserve currency,butgeopolitical concerns and Emerging Market opportunities drive cent
245、ral banks todiversify currency holdings.Despite the US dollars resilience,centralbanks increasingly allocate toEmerging Market currencies,seekinghigher risk-adjusted returns and growth potential in developing nations.37WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixIn 2022,central bank
246、s worldwide grappled with unprecedented volatility,40-year record high inflation,and climbing interest rates,making the management of reserve portfolios an uphill battle.The economic turbulence resulting from the Covid-19 pandemic,exacerbated by geopolitical events,made determining the most appropri
247、ate strategies difficult,prompting ongoing reviews throughout the year(figure 5.1).Figure 5.1 Biggest challenge in managing reserves during 2022(Number of citations,central banks only)What was the biggest challenge managing your reserves during 2022?Sample size:48.Inflation(13)Volatility(10)Liquidit
248、y(7)Returns(6)Interest rates(9)Uncertainty(6)Geopoliticalrisk(4)Explaininglosses(3)Internationalgovernance(1)Recession(1)Volatile yields can lead to increased volatility in the value of investments,which can lead to reduced returns and increased risks.Central bankThe West 38WelcomeKey metricsTheme 1
249、Theme 2Theme 3Theme 4Theme 5AppendixCentral banks balancing act:higher yields,volatility,andtheflightto gold The end of zero yields presents both opportunities as well as challenges for central banks.Higher bond yields boost returns in traditionally weighted fixed income portfolios,with 70%of centra
250、l banks agreeing that higher yields makes managing central bank reserves easier.One Asian central bank plans to increase duration but reduce diversification,exiting low-yielding markets and focusing on high-yielding countries like the US and Emerging Markets.While some other central banks also agree
251、 with increasing portfolio duration over the next 2years(30%agree,63%neutral),incontrast,the majority(57%)of central banks expect to increase diversification in the changing macroenvironment landscape.Higher yields can signal higher risk,prompting an appetite for diversification.One central bank bas
252、ed in the West explained,“The increase inyields can lead tohigher borrowing costs,which can reduce the amount of funds available for investment.In addition,volatile yields can lead to increased volatility in the value of investments,which can lead to reduced returns and increased risks”.Asaresult,ma
253、ny central banks closely monitor yield movements and take appropriate action where necessary.Amid volatile yields,2022 saw a flight to gold,questions around the US dollars future as the worlds reserve currency,and increased diversification of currency holdings.Banking on Gold:hedging against volatil
254、ity and geopolitical risk Golds spot price surpassed record levels ofUS$2,000 per ounce three times in as many years,reflecting the uncertainty of the current macroeconomic environment.Persistent geopolitical tensions,recession fears,andthreats of bank runs and broader banking crises,signalthat econ
255、omic uncertainty will persist.In 2022,central banks made record gold purchases,with net acquisitions of 1,136 tonnes,4 marking a 12th consecutive year of a net increase in gold holdings.It is worth noting that almost 20%of these net purchases came from just two central banks Turkey and China both of
256、 which continued to drive high demand into Q1 2023.5 However other central banks,particularly in the Middle East and Emerging Markets,werealso noteworthy buyers in 2022,and sentiment towards increasing allocation further is overall bullish amongst our sample(figure 5.4,page 39).Reserve portfolio man
257、agers identified inflation asa key risk,with two-thirds of central banks seeking to protect their portfolios from global inflationary trends(figure 5.2).Increasing gold allocation was the most prevalent method,with69%of central banks countering global inflation through gold allocations(figure 5.3).F
258、igure 5.3 Methods for protecting portfolios from global inflationary trends(%citations,central banks)How are you looking to protect the portfolio from global inflationary trends?Sample size:29.Allocationto goldShortening theportfolio durationAllocationto TIPSDiversification6941317 Have you looked to
259、 protect the portfolio from global inflationary trends?Sample size:50.4 World Gold Council:https:/www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2022/central-banks.5 World Gold Council:https:/www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2023/c
260、entral-banks.Figure 5.2 Protected the portfolio from global inflationary trends(%citations,central banks)YesNo3466 39WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixTraditionally viewed as an effective inflation hedge,gold has been favoured by many central banks.One Western central bank
261、 said,“Gold is one of the inflation-protected assets and a major part of our diversification strategy.Liquidity,risk-return,and even reputational restrictions ofreserve portfolios makes gold more attractive as alternative hedging options are limited.A significant proportion of central banks expect g
262、old allocations to increase over the next three years,with not one anticipating a decrease(figure 5.4).With gold proving reliable,the Russia-Ukraine war and subsequent weaponisation of reserves have driven global volatility and currency uncertainty,prompting a flight to safety.A total of 96%of centr
263、al banks increasing gold allocations cited its status asasafe-haven asset(figure 5.5).Figure 5.4 Gold allocation change and expectations(%citations,central banks)How has the allocation to gold changed over the last 3 years?How do you expect it to change in the next 3 years?Sample size:53.Last 3 year
264、sNext 3 years expectation425174159IncreaseStay the sameDecreaseFigure 5.5 Reasons for increasing gold allocations(%citations,central banks)Why have you increased allocations to gold?/Why are you increasing allocations to gold?Sample size:24.96“Safe haven”assetConcerns over global volatilityCurrency
265、uncertaintyProspect of returnsConcern about freezing ofcentral bank assets(e.g.Russia)High government debt levelsPolitical riskAlternative to USD63544238292525 40WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixA substantial percentage of central banks are concerned about the precedent s
266、et by the US freezing of Russian reserves,with the majority(58%)agreeing that the event has made gold more attractive.Consequently,central banks now prefer to hold physical gold rather than gold ETFs or derivatives(figure 5.6).Physical gold holdings have increased the most when compared with 2020,wh
267、ile gold ETF usage has fallen.“Goldhasplayed a crucial role during the last couple of years:We increased the exposure 8-10 years ago and had it held in London,usingitfor swaps and to enhance yields,butweve now transferred our gold reserves back to our own country to keep it safe its role now is tobe
268、 asafe-haven asset”said one central bank based in the West.The World Gold Council reported an increased demand for gold bars and coins in 2022,while holdings of gold ETFs fell.6 Thisshift reflects a heightened geopolitical risk environment,with 57%of central banks agreeing that gold is a hedge again
269、st geopolitical turmoil.Figure 5.6 Gold holdings(%citations,central banks)How do you invest in gold now?How do you think you will invest in gold in 5 years time?Sample size:43.Physical gold heldin own countryPhysical gold heldin foreign central banks/foreign bullion banksGold ETFsGold derivatives(sw
270、aps/futures)7350687474742920 holdingsInvest nowInvest in 5 years time 6 World Gold Council:https:/www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2022.We increased the exposure 8-10 years ago,and transferred gold reserves back to country we did have it held i
271、n London and could use it to enhance yields and for swaps,butnow weve transferred it back to own country tohold as a safe haven asset and to keep it safe.Central bankThe West41WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixDedollarisation dilemma:no alternative in sightThe freezing of
272、Russian assets by Western nations has thrust the worlds reliance on the US dollar as the dominant reserve currency into the spotlight,raising questions about its long-term viability amidst high US debt levels.A growing percentage of central banks year-on-year believe that the USdebt levels are negat
273、ively impacting the Dollar(figure 5.7).However,central banks generally agree that there is no clear alternative to replace the US dollar as the worlds reserve currency,with 53%disputing that the dollar will be weaker in five years,up from 46%last year.One central bank based in an Emerging Market exp
274、lained:“People have been looking for alternatives to the dollar and euro for a long time and they wouldve gone to them already if there were any suitable alternatives”.Another central bank,based in an Emerging Market,shared thissentiment:“Idontsee a world in which US dollar is threatened as there is
275、 no real alternative”.The Chinese renminbi,with its increasing allocations in recent years,is often considered apotential future alternative.Allocationsrose from 1.1%of total foreign exchange reserves at the end of 2016 to 2.8%at the end of20217(2.69%at the end of 2022).However,sentimentsurrounding
276、the renminbi becoming atrue reserve currency has declined year on year,withasignificantly greater proportion of central banks disagreeing that it will achieve that status within five years(figure 5.8).7IMF COFER:https:/data.imf.org.To what extent do you agree with the following statements?Sample siz
277、e:55.20222023Figure 5.7 Agreement with statements(%citations,central banks)The US dollar is being negatively impacted byUS debt levelsThe position of the US dollar as the world reserve currency will be weaker in 5 yearsAgreeNeutralDisagree202220236To what extent do you agree wi
278、th the following statements?Sample size:55.202220239AgreeNeutralDisagreeFigure 5.8 Agreement with statements (%citations,central banks)RMB will become a true reserve currency in5yearsPeople have been looking for alternatives to the dollar and euro for a long time and they wouldve gone tot
279、hem already if there were any suitable alternatives.Central bankEmerging Markets 42WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixDespite these concerns,central banks still expect to increase renminbi holdings over time,drivenbystrong performance and uncorrelated returns.However,barrie
280、rs such as liquidity,property sector debt,and political risk hinder the renminbis potential to overtake the USdollar as the worlds reserve currency(figure 5.9).Centralbanks are less bullish about the proportion of renminbi holdings infive years compared to last years predictions.Looking further ahea
281、d(10 years plus),mostcentral banks do not anticipate a significant shift in global trade currencies(figure 5.10).Aconsiderable proportion do expect a shift towards renminbi(27%of central banks),but expectations differ based on the region.Emerging Markets are more likely to use renminbiin global trad
282、e,as seen with Brazil,Argentina,and Russia making deals to trade intheir own currencies or renminbi.Despite the headlines surrounding dedollarisation and the ongoing search for an alternative reserve currency,the lack of a stable and liquid contender keeps central banks confident in the US dollars p
283、osition as the worlds reserve currency.Figure 5.10 Shift in global trade currency over long term(%citations,central banks)Over the long term(10 years+)do you expect any shift from the dollar/western currencies in global trade/payments?Sample size:48.No major changeTowards a diversified basket of cur
284、renciesTowards a more“barter”oriented system using commoditiesTowards RMBCentral banks(Total)AsiaEmerging MarketsMiddle EastWest53224563674112318272Figure 5.9 Barriers to higher RMB allocations(%citations,central banks)What are the barriers to higher RMB allocations?Sample size:42.Politic
285、al riskLiquidityAccessLack of capability/resourcesInsufficient risk-adjustedreturns575748292143WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixCurrency diversification toEmerging MarketsWhile the US dollar is expected to retain itsdominance,central banks are increasingly exploring diver
286、sification into Emerging Market currencies to hedge against volatility and stay within authorised asset classes.Sentimenttowards broader Emerging Market allocations shifted dramatically over 2022 47%of central banks had non-renminbi Emerging Market allocations in 2022,rising to54%in2023(figure 5.11)
287、.Furthermore,63%of central banks anticipate having allocations in five years,withanotable increase in the size ofholdings.One central bank in the West highlighted the appeal of Emerging Markets,stating,“EmergingMarkets are attractive because of the high returns,and the potential for higher growth.Cu
288、rrently these countries are economically developing”.Another central bank,currentlywithout any Emerging Market allocations,concurred,“We dont have any allocation inEmerging Markets as of now.However,inthe coming years we are looking toinvest due tothe economic growth and higher return inthose region
289、s”.With mostcentral banks holding Emerging Market currency allocations intheir investment tranche,risk-adjusted returns emerge as a driving factor,aligning with the interest in Emerging Market debt as a fixed income sub-sector as discussed earlier in this report(Theme 1,figure 1.7,page 12).India and
290、 South Korea continue to be the most attractive destinations for increasing exposure(figure 5.12).One central bank based in the West explained that they were looking at increasing their exposure to EM debt and in particular focused ondebt targeting real estate and infrastructure aswell as other dive
291、rsified industries.Figure 5.11 Allocations to Emerging Markets(excluding China)(%citations,central banks)What is your current allocation to EM(excluding-China)in your reserves?What do you think your allocation will be in 5 years time?Sample size:50.No allocation10%534637322244415Figure 5.
292、12 Attractive EM markets for increasing exposure(%citations,central banks)Which of the following EM markets do you see as attractive for increasing your exposure?Sample size:25.South KoreaIndiaSouth AfricaIndonesiaMexicoBrazilRussia727264443228122022 allocation2023 allocationAllocation in 5 years ti
293、meAppendix44Sample and MethodologyThe fieldwork for this study was conducted by NMG between January and March 2023.Invesco chose to engage a specialist independent firm to ensure high quality objective results.Key components ofthemethodology include:A focus on the key decision makers withinsovereign
294、 wealth funds and central banks,conducting interviews using experiencedconsultants and offering market insightsratherthan financial incentives In-depth(typically 1 hour)face-to-face interviewsusing a structured questionnaire to ensurequantitative as well as qualitative analyticswerecollected Analysi
295、s capturing investment preferences aswell as actual investment allocations with a biastoward actual allocations over stated preferences Results interpreted by NMGs team with relevantconsulting experience in the global assetmanagement sectorIn 2023,we conducted interviews with 142 funds:85 sovereign
296、investors and 57 central banks.The2023 sovereign sample is split into three core segmentation parameters(sovereign investor profile,region and size of assets under management).The2023 central bank sample is broken down byregion.Figure 6.1 Sovereign investor sample,by segmentCentral bankDevelopment s
297、overeignLiquidity sovereignLiability sovereignInvestment sovereign756595857966999810 10 8303442 12 920WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appendix20000222023Figure 6.2 Sovereign invest
298、or sample,by regionWestAsiaEmerging MarketsMiddle East85764636564733363229 29999824308817182119Figure 6.3 Sovereign wealth fund sample,by assets under managementUS$100bn3958 23 232622263329F
299、igure 6.4 Central bank sample by regionWestAsiaEmerging MarketsMiddle East2582 22421121714 945WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5Appendix200002220232000022202320
300、00022202346WelcomeKey metricsTheme 1Theme 2Theme 3Theme 4Theme 5AppendixDefining sovereign investorsThere are distinct segments of sovereign investors,determined in the first instance by their objectives.This framework is outlined below.Investment sovereigns Investment sovereig
301、ns have no specific liabilities that they are intended to fund.Thistypically means this segment invests with a particularly long-time horizon and high tolerance for illiquid and alternative asset classes.Long investment return objectives tend to be high,reflecting an ability to capture additional re
302、turn premia.Liability sovereigns Liability sovereigns in contrast are intended tofund specific liabilities,liability sovereigns aresub-segmented into those which are already funding liabilities(current liability sovereigns)vs those where the liability funding requirement is still in the future(parti
303、al liability sovereigns).Liability sovereigns generally seek to match their portfolio with the duration of the liabilities they are funding.Those where funding requirements are still well into the future resemble investment sovereigns in their approach;those with significant current funding requirem
304、ents tend tostill have a diverse long-term portfolio but willbe more liquid and higher yielding.Liquidity sovereigns Liquidity sovereigns operate so they can act as abuffer in the event of economic shocks.Theyare most commonly located in Emerging Markets which are prone to exchange rate volatility a
305、nd/or in resource-based economies which are highly exposed to fluctuations in commodity prices.Because of the priority placed on being able to deploy capital predictably andatshort notice,Liquidity sovereigns invest with a much shorter time horizon and with afocus on liquidity ahead of returns.Devel
306、opment sovereigns Development sovereigns are only partial portfolio investors.Their principle objective isto promote domestic economic growth rather than achieve an optimal risk/return portfolio trade-off.This is pursued by investing in strategic stakes in companies which make asignificant contribut
307、ion to the local economy to promote expansion and growth in employment.Theypursue portfolio strategies with their other assets which are usually influenced by the size and characteristics of their strategic stakes.Central banks Central banks have a range of domestic roles in their economy banking to
308、government,issuance of currency,setting of short-term interest rates,managing money supply,andoversight of the banking system.Centralbanks also have a range of external facing roles,including managing foreign exchange rate policy and operations,includingpayments for imports/receipts for exports and
309、government overseas borrowings.Centralbanks hold substantial reserves tosupport those functions and ensure they are seen as credible.Thosereserves have traditionally been invested with apriority oncapital preservation and liquidity.Figure 6.5 Sovereign profile segmentationPrimary objectiveCapital pr
310、eservation&liquidity Investment&liquidityInvestment&liability fundingInvestment&developmentInvestment onlyGlobal sovereign segmentCentral banksLiquidity sovereignsLiability sovereigns Development sovereignsInvestment sovereignsTime horizon&illiquidity tolerance47WelcomeKey metricsTheme 1Theme 2Theme
311、 3Theme 4Theme 5AppendixInvestment riskThe value of investments and any income will fluctuate(this may partly be the result of exchange ratefluctuations)and investors may not get back thefullamount invested.Important informationThis document is intended only for professional investors in Hong Kong,f
312、or Institutional Investors and/or Accredited Investors in Singapore,for certain specific sovereign wealth funds and/or Qualified Domestic Institutional Investors approved by local regulators only in the Peoples Republic of China,for certain specific Qualified Institutions and/or Sophisticated Invest
313、ors only in Taiwan,for Qualified Professional Investors in Korea,for certain specific institutional investors in Brunei,for Qualified Institutional Investors and/or certain specific institutional investors in Thailand,for certain specific institutional investors in Malaysia,for certain specific inst
314、itutional investors in Indonesia and for qualified buyers in Philippines for informational purposes only.This document is not an offering of a financial product and should not be distributed to retail clients who are resident in jurisdiction where its distribution is not authorized or is unlawful.Ci
315、rculation,disclosure,or dissemination of all or any part of this document to any unauthorized person is prohibited.This document may contain statements that are not purely historical in nature but are forward-looking statements,which are based on certain assumptions of future events.Forward-looking
316、statements are based on information available on the date hereof,and Invesco does not assume any duty to update any forward-looking statement.Actual events may differ from those assumed.There can be no assurance that forward-looking statements,including any projected returns,will materialize or that
317、 actual market conditions and/or performance results will not be materially different or worse than those presented.All material presented is compiled from sources believed to be reliable and current,but accuracy cannot be guaranteed.Investment involves risk.Please review all financial material care
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320、s unlawful to make such an offer or solicitation.This document is issued in the following countries:This document is issued in Hong Kong byInvesco Hong Kong Limited景順投資管理有限公司,45/F,Jardine House,1 ConnaughtPlace,Central,Hong Kong.in Singapore by Invesco AssetManagement Singapore Ltd,9 RafflesPlace,#18-01 Republic Plaza,Singapore048619.in Taiwan by Invesco Taiwan Limited,22F,No.1,Songzhi Road,Taipei 11047,Taiwan(0800-045-066).Invesco Taiwan Limited is operated and managed independently.20-AP