1、MANAGING RESERVES IN A WORLD TURNED UPSIDE DOWN omfif.org3YOUR INVESTMENT MANAGER YOUR TRUSTED PARTNERThe No.1 European Asset Manager(1)Getty ImagesFOR PROFESSIONAL CLIENTS ONLY.(1)Source IPE“Top 500 asset managers”published in June 2022 and based on AUM as of end December 2021.(2)Amundi data includ

2、ing Lyxor as at 31/03/2022.In the UK,this promotion is issued by Amundi(UK)Limited,registered office:77 Coleman Street,London,EC2R 5BJ,United Kingdom.Amundi(UK)Limited is authorised and regulated by the Financial Conduct Authority under number 114503.This document is not intended for any citizens or

3、 residents of the United States of America or any“U.S.Person”as defined by“Regulation S”of under the US Securities Act of 1933.The content of this advertisement is for information purposes only and does not constitute a recommendation to buy or .June 2022.|To meet our clients evolving needs,Amundi o

4、ffers industry-leading investment solutions,the strength and scale of a global leader and a firm commitment to responsible investment.More than 2 trillion in assets under management(2)A presence in more than 35 countries with 6 investment hubs Active,passive and real assets investment solutionsBecau

5、se thats what you expect from a trusted partner._GB_Amundi_CorporateGenerique_OMFIF_210 x297mm+3_2006.indd 116/06/2022 09:35CONTENTS5 Foreword All change forreserves managers.7 Executive summary Managing reserves in a world turned upside down10Key findings20 Chapter 1:Macro environmentReserves manag

6、ers face tough new paradigm.26 Chapter 2:Asset allocationTime to get more active?202666385275624438Chapter 3:External managers Knowledge is key as reserves managers lean on their advisers.44Chapter 4:Sustainable bonds Barriers to entry hamper sustainability progress.52Chapter 5:Global flows Caution

7、and flight in global currency flows.62Chapter 6:Managing communications Central banks under pressure over transparency.66Regional spotlightsKey data from survey and rankings by region.75DatabankThe worlds institutions ranked.omfif.org5GLOBAL PUBLIC INVESTOR has been the cornerstone of OMFIFs researc

8、h portfolio since it was launched in 2013.Then,as now,the aim of the GPI was to shine a light on the investment approaches of some of the worlds most influential institutions,whose firepower and official status give them the ability to underpin,or move,global markets.This latest iteration of the GPI

9、 is a new step forward as we aim to improve the scope and utility of the research we gather and analyse.This edition focuses solely on central bank reserves managers how much they manage and how they manage it today but also their views on the macroeconomic outlook,likely future approaches to asset

10、allocations and what is driving those decisions.The GPIs traditional research on global public pension funds and sovereign funds will now be published in November,allowing us to focus in more depth on the specific issues facing those official institutions,while still providing a view of the entire u

11、niverse of global public investors.We began our survey of central banks in mid-March,just as the true extent of the resurgence of global inflation was becoming clear.And it was shortly after Russia had invaded Ukraine,exacerbating many of the supply chain issues that were already driving prices high

12、er and heightening geopolitical tensions to new levels.As such,our research,based on survey responses from more than 70 central banks globally,is the first of its kind to reveal how reserves managers are reacting to a generational shift in the investment environment.Reserves managers are inherently

13、conservative and long-term investors.For almost 15 years,after the 2008 financial crisis,they faced a relatively benign environment,in which fixed income their core holdings performed in a stable manner,underpinned in many regions by huge central bank support in the form of quantitative easing.Retur

14、ns were low,however,prompting a growing proportion of central banks to seek extra returns through diversification into higher-yielding fixed income,as well as equities and exchange-traded funds.As we prepared our survey at the beginning of 2022,it seemed that the main factor affecting reserves manag

15、ers would be how they,and the markets,managed the transition to quantitative tightening.In the event,major central banks ending their asset purchasing programmes is just the third most important factor in how they manage reserves,behind inflation and geopolitics.The clear majority of reserves manage

16、rs does not expect to make fundamental shifts in their strategic asset allocations,at least in the short term.For long-term managers,this seems a sensible approach.Constrained as many are in their ability to buy other inflation-hedging assets such as infrastructure perhaps it is the only approach.On

17、e leading adviser to reserves managers told us that many central banks consider that things have been great since 2008,and now we must suffer.He says many of his clients view the next few years of difficult markets as cyclical and inevitable,almost in a fatalistic way.But with just 20%of respondents

18、 to the survey believing inflation will prove transitory,more fundamental shifts could become apparent next year.All of this is taking place in the shadow of the decision by a large part of the international community to freeze many of Russias foreign assets following the invasion of Ukraine.However

19、 appropriate the motive,this move upends the pact that a central bank has sovereignty over its assets,wherever they are held.Future editions of the GPI will no doubt reveal if this leads some central banks to consider what reserves they hold,and where.FOREWORDALL CHANGE FOR RESERVES MANAGERSInflatio

20、n and geopolitics bring a paradigm shift for central banks investment operations,explains Clive Horwood,managing editor and deputy CEO,OMFIF.OUR RESEARCH,BASED ON SURVEY RESPONSES FROM MORE THAN 70 CENTRAL BANKS GLOBALLY,IS THE FIRST OF ITS KIND TO REVEAL HOW RESERVES MANAGERS ARE REACTING TO A GENE

21、RATIONAL SHIFT IN THE INVESTMENT ENVIRONMENT.omfif.org5OMFIF GLOBAL PUBLIC INVESTOR 2022 4 2022 OMFIF Limited.All Rights Reserved.Strictly no photocopying is permitted.It is illegal to reproduce,store in a central retrieval system or transmit,electronically or otherwise,any of the content of this pu

22、blication without the prior consent of the publisher.While every care is taken to provide accurate information,the publisher cannot accept liability for any errors or omissions.No responsibility will be accepted for any loss occurred by any individual due to acting or not acting as a result of any c

23、ontent in this publication.On any specific matter reference should be made to an appropriate adviser.Company Number:7032533.ISSN:2398-4236Official Monetary and Financial Institutions Forum 6-9 Snow Hill,London,EC1A 2AY T:+44(0)20 700 27898enquiriesomfif.org omfif.orgABOUT OMFIFWith a presence in Lon

24、don,Washington and New York,OMFIF is an independent forum for central banking,economic policy and public investment a neutral platform for best practice in worldwide public-private sector exchanges.ACKNOWLEDGMENTSOMFIF thanks officials from the co-operating countries and cities for this publication,

25、which will be joining us in launch partnerships around the world.We are grateful to many other associates and colleagues for their assistance and guidance.AUTHORSClive HorwoodManaging Editor and Deputy CEO Neil WilliamsChief EconomistTaylor PearceEconomistJulian JacobsEconomistEdward MalingResearch

26、AssistantADDITIONAL RESEARCH Mausi Owolabani Policy AnalystEDITORIAL AND PRODUCTIONSimon HadleyDirector,ProductionWilliam Coningsby-BrownProduction ManagerSarah MoloneySubeditorFergus McKeownSubeditorMARKETINGBen RandsDirector of Events and MarketingJames FitzgeraldDeputy Head of Events and Marketin

27、gHenna RattuMarketing and Events CoordinatorAmy HolderEvents and Marketing CoordinatorBOARDDavid MarshChairmanPhilip MiddletonDeputy ChairmanJohn OrchardChief Executive Officer Jai Arya,Maggie Mills,Mark BurgessADVISORY COUNCILMeghnad DesaiChairmanMark SobelUS ChairmanMarsha Vande BergDeputy Chairma

28、nHani KablawiDeputy ChairmanFrank ScheidigDeputy ChairmanBen Shenglin,Chair,OMFIF Economists Network,Michael Cole-Fontayn,Otaviano Canuto,Aslihan Gedik,Prakash Kannan,Yougesh Khatri,John Kornblum,Norman Lamont,Rudi Lang,Oscar Lewisohn,Dennis Lockhart,Leslie Maasdorp,Nicolas Mackel,Timothy Massad,Bre

29、nt McIntosh,Sheila MMbijjewe,Kingsley Moghalu,Rakesh Mohan,Clestin Monga,Nora Mller,Ila Patnaik,Oystein Olsen,Danny Quah,Ludger Schuknecht,Anne Simpson,Christopher Smart,Marc-Olivier Strauss-Kahn,Niels Thygesen,Natacha Valla,William White,Andrew Wold,Janine von Wolfersdorff,Zhongxia Jin omfif.org7FO

30、R the past year or so,monetary policy-makers have been trying to convince markets that the return of inflation is transitory.Its not a line that their central bank counterparts in the reserves management divisions are buying any more,if they ever did.More than 75%of central bank reserves managers su

31、rveyed by OMFIF for the 2022 edition of Global Public Investor believe inflation will either remain sustainably higher or at least be more volatile.Just 20%think it will relatively quickly return to the low 2010-19 average.Coming alongside the rise in concerns about geopolitics,largely(but not exclu

32、sively)driven by Russias invasion of Ukraine,the investment world has been turned on its head.And this presents a wide set of challenges for the people running the reserves of the worlds central banks.Its worth remembering that many investors(and policy-makers)have little experience of coping with i

33、nflation,which was last an issue in most developed economies 30 years ago.And that most reserves managers have mandates that restrict their ability to invest in a broad array of asset classes which could help them hedge against inflation.Government and quasi-government bonds make up close to 50%of o

34、verall portfolios.Cash(which includes short-term money market instruments)is the next highest component,at 17%,although 25%of respondents plan to reduce their cash holdings over the next 12-24 months.Gold a potential hedge against inflation is at just under 10%.THERE IS NO DOUBT THINGS HAVE MOVED FA

35、ST:IN LAST YEARS GPI,INFLATION WASNT EVEN CONSIDERED A FACTOR IN THEIR DECISION MAKING.EXECUTIVE SUMMARYFaced with a rapidly changing environment,most central banks plan to sit tight at least for now.MANAGING RESERVES IN A WORLD TURNED UPSIDE DOWNNeuberger Berman,founded in 1939,is a private,indepen

36、dent,employee-owned investment manager.The firm manages$447 billion in client assets as of March 31,2022 across a range of strategiesincluding equity,fixed income,quantitative and multi-asset class,private equity,real estate and hedge funds.With offices in 25 countries,Neuberger Bermans diverse team

37、 has over 2,500 professionals.The company has been named first or second in Pensions&Investments Best Places to Work in Money Management survey since 2014(among those with 1,000 employees or more).Visit us at All information is as of 31 December 2021 unless otherwise indicated.This material is provi

38、ded for informational purposes only and nothing herein constitutes investment,legal,accounting or tax advice,or a recommendation to buy,sell or hold a security.Information is obtained from sources deemed reliable,but there is no representation or warranty as to its accuracy,completeness or reliabili

39、ty.This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC.Please visit for the specific entities and jurisdictional limitations and restrictions.X0197 06/22 1077933 2022 The“Neuberger Berman”name and logo are registered servi

40、ce marks of Neuberger Berman Group LLC.All rights reserved.X0197_0622_Global Public Investor Ad.indd 115/06/2022 15:51:47 omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/EXECUTIVE SUMMARY89ITS WORTH REMEMBERING THAT MANY INVESTORS(AND POLICY-MAKERS)HAVE LITTLE EXPERIENCE OF COPING WITH INFLATION,WHICH WA

41、S LAST AN ISSUE IN MOST DEVELOPED ECONOMIES 30 YEARS AGO.Equities,to which a small but growing number of central banks began allocating in an effort to boost returns in the lower-for-longer rate environment,remains at just 3%of overall portfolios.Now,of course,lower is no longer.Inflation is rising,

42、although hikes in interest rates so far have been relatively contained.The issue for many reserves managers is the level of real interest rates,which are now running as low as-7%in some markets.Those with exposure to equities are also absorbing losses as stock markets take fright at the prospect of

43、stagflation.Reserves management is a slow-moving business.It can take up to two years to effect a fundamental change in investment approach,such as incorporating a new asset class.That makes it harder still to adapt to sudden changes in the market environment.And there is no doubt things have moved

44、fast:in last years GPI,inflation wasnt even considered a factor in their decision-making.Most reserves managers are sitting tight,preserving capital and increasing liquidity in their portfolios.Just over half of the 73 central banks that completed our survey say the macro environment will prompt the

45、m to become more active,albeit mostly around the edges for example,shortening duration of fixed-income holdings or moving into slightly higher-yielding safe assets,such as supranational bonds or asset-backed securities.Meanwhile,reserve assets have continued to grow globally(Figure 1)reaching a new

46、record of$16.2tn,representing growth of more than 20%since 2019.The vast majority of that growth continues to come from a combination of Asia Pacific,where growing economies are accumulating reserves,and from Europe,via central bank quantitative easing.Europes reserves have grown by 62%since 2017,bu

47、t at$4.15tn are still less than half those in Asia.But Asias dominance of global reserve assets is declining(Figure 2).Total reserve assets as a percentage of global gross domestic product have fallen back almost to pre-pandemic levels as extraordinary central bank intervention continued,coinciding

48、with the revival of GDP after the pandemic-related economic shocks of 2020-21(Figure 3).Concentration of assets 0%10%20%30%40%50%60%70%80%90%100%MELAAPEUAFLargestSecond largestThird largestRest of region2.DISPARITIES IN RESERVES BOTH BETWEEN AND WITHIN REGIONSConcentration of central bank reserves b

49、y region,%Source:International Monetary Fund02,0004,0006,0008,00010,00012,00014,00016,00018,0002002020212022APEULAMENAAF1.CENTRAL BANK RESERVES REACH NEW HEIGHTS,DRIVEN BY EUROPE AND ASIAGlobal reserve assets,$bnSource:International Monetary Fund46.5%proportion of global reserves held by

50、five largest central banks(China,Japan,Switzerland,US,India)60%believe that successful reserves management is critical to a central banks public reputation58%of central banks excluding Asia Pacific believe inflation will remain sustainably higher90%+cite capital preservation and ensuring liquidity a

51、s their top two investment priorities31%of reserves managers plan to increase holdings of renminbi over the next 12-24 months63%cite insufficient data or information as a major barrier to adopting or integrating ESG into their portfolios7200255602002020212

52、022Asia PacificRest of world3.RESERVE RATIOS RETURNING TO PRE-PANDEMIC LEVELSGlobal reserve assets,%of GDPSource:International Monetary Fund4.ASIA PACIFICS DOMINANCE OF GLOBAL RESERVE ASSETS LESS PRONOUNCEDShare of global reserve assets,%Source:International Monetary FundTOTAL RESERVE ASSETS AS A PE

53、RCENTAGE OF GLOBAL GROSS DOMESTIC PRODUCT HAVE FALLEN BACK ALMOST TO PRE-PANDEMIC LEVELS AS EXTRAORDINARY CENTRAL BANK INTERVENTION CONTINUED,COINCIDING WITH THE REVIVAL OF GDP AFTER THE PANDEMIC-RELATED ECONOMIC SHOCKS OF 2020-21.(Figure 4)continues to vary by region,with the top three central bank

54、s accounting for more than 73%in the Middle East(the highest by region)and 43%in Africa(the lowest).In addition to traditional questions about asset allocation,future investment plans and the macro environment,this years GPI includes a detailed focus on a number of specific areas.CHINA:More than 30%

55、of reserves managers plan to increase their holdings of renminbi assets in the next two years.Around 85%of them already own Chinese government bonds.Geopolitical concerns,poor market infrastructure and difficulties accessing the market for foreign investors are the main reasons for not allocating mo

56、re to renminbi assets.EXTERNAL MANAGERS:Globally,12.6%of reserve assets are overseen by external managers.The highest region is Latin America,at 24%,and the lowest is Europe at 5.8%.Knowledge transfer or learning how to manage new or complex asset classes internally is the most popular reason for us

57、ing external managers(85%of respondents).EXCHANGE-TRADED FUNDS:In total,0.98%of reserves managers portfolios are invested in ETFs.Asia is the region which most uses ETFs,at 2.15%of assets under management.Some 18%of central banks plan to increase use of ETFs in the next 12-24 months.SOCIAL BONDS:Thi

58、s year saw a steep rise in holdings of sustainable fixed-income assets other than green bonds(41%of respondents,up from 8%).Social bonds are of particular interest to reserves managers,with 66%of respondents saying they already own or plan to invest in this asset type.Around 60%of survey respondents

59、 said that successful reserves management is crucial to a central banks reputation.Getting the calls right over the likely turmoil in global financial markets over the coming years could,perhaps,help to offset the negative view that their colleagues in monetary policy have let the inflation genie ou

60、t of the bottle,and are struggling to control it.$16.2tnTotal reserve assets under management of 171 global central banks33.6%rise in global reserve assets since 201773Survey respondents86%consider inflation to be one of the key factors affecting reserves management41%of survey respondents now own s

61、ustainable fixed-income assets other than green bonds,such as social,transition,blue or SDG bonds9%of total portfolios are invested in emerging markets57%of total portfolios are held in dollarsOMFIF GLOBAL PUBLIC INVESTOR 2022/KEY FINDINGS10 omfif.org11KEY FINDINGSRETURN OF INFLATION WILL NOT BE TRA

62、NSITORYHow will the rate of inflation evolve across most major economies over the next 24 months?Share of respondents,%Source:OMFIF GPI survey 2022INFLATION AND GEOPOLITICS TOP LIST OF MACRO FACTORSWhat are the three most important factors affecting reserves management in the current economic enviro

63、nment?Share of respondents,%Source:OMFIF GPI survey 2022INFLATION IS NOW THE NUMBER ONE CONCERN OF RESERVES MANAGERSMANY CENTRAL BANKS DONT BELIEVE INFLATION IS UNDER CONTROLALMOST half of the reserves managers surveyed by OMFIF think inflation is set to go high and remain higher.This suggests they

64、dont believe their central banking peers in charge of monetary policy have the tools to suppress the surge in inflation any time soon.Strip out the responses of Asian central banks where the majority believe inflation will be more volatile,but not persistently higher and the proportion of reserves m

65、anagers expecting price rises to remain sustainably higher rises to nearly 60%.Just 20%of respondents now believe that the spike in inflation will be transitory,the line followed by many senior central bankers over the past 12 months.HOW the world has changed.Close to 90%of reserves managers now cou

66、nt inflation as one of the three most important factors affecting their performance.Last year,inflation wasnt even considered a major factor.The impact of the war in Ukraine is clear,with geopolitics now cited by more than 80%of the central banks surveyed,whereas in 2021 just 17%were factoring in su

67、ch tensions.It seems ironic now,as global interest rates rise,that just 12 months ago the main factor affecting reserves managers was the expectation of major central banks moving further into negative rate territory.Expect a rise in the importance of a protracted slowdown in real economic activity

68、to become more of a concern in the 2023 iteration of the GPI.2060708090100InflationGeopolitical tensions and protectionismMajor central banks ending asset purchase programmesProtracted slowdown in real economic activityIncreased focus on sustainableinvestments Rising levels of public debt

69、 in developed economiesDebt defaults or haircuts in emerging economies 0070It will remain sustainably higherIt will be more volatile thanin the past three decades,given a number of factorsIt will remain higher for ashort period and then return to the 2010-19 averageIt will quickly fallbac

70、k to the2010-19 average omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/KEY FINDINGS1213CAPITAL PRESERVATION AND LIQUIDITY MORE IMPORTANT THAN EVERRespondents top-two most important investment objectives(1=most important)Share of respondents,%Source:OMFIF GPI survey 2022RISK-TAKING OFF THE AGENDA FOR MOS

71、T RESERVES MANAGERSHow will the elevated rate of inflation across most major economies affect your decision-making?Share of respondents,%435347055404550We will maintain our traditional risk approach andhave accepted a lower real returnOur decision-making will not be affectedWe will try to

72、 maintain the absolute level of returnby increasing our riskbudget/diversifying intoWe will increase the size of our reserves tocompensate for the erosion in value of ourfixed income holdingshigher yielding assetsCENTRAL banks have traditionally been risk-averse investors,putting capital preservatio

73、n and liquidity at the heart of their approach.Upheavals in the macroeconomic environment have only served to reinforce this.More than 90%of reserves managers cite capital preservation and ensuring liquidity as their top-two investment objectives.In our 2021 survey,capital preservation was a top-thr

74、ee objective for 75%of respondents.Capital preservation is also the most important factor in diversifying reserves,cited by 44%.Less than 30%of respondents in 2020 ranked capital preservation as a top-three factor in diversification.The question in the months and years to come for many reserves mana

75、gers will be whether capital preservation actually equates to minimising capital losses.AROUND 70%of reserves managers say they will not make any fundamental changes to their investment approach despite the surge in inflation.Of these,two-thirds say they have accepted their real returns will fall.Th

76、e remainder might consider that they are already well positioned for the longer term,or perhaps are hoping for the best.That doesnt mean reserves managers are going to just sit on their hands a slight majority of respondents will become more active in their portfolio management.Expect that activity

77、to involve marginal shifts in asset allocation,rather than major strategic changes,at least for the time being.00708090100Inflation+x bpsNominal targetReference portfolioTarget return in%Ensuring liquidityCapital preservation12BATTEN DOWN THE HATCHESRESERVES MANAGERS RESIGNED TO A PERIOD

78、OF POORER RETURNSCHANGES IN MACRO ENVIRONMENT WILL DRIVE MARGINAL PORTFOLIO SHIFTSDo you anticipate that economic and market volatility will prompt you to adopt a more active approach to portfolio management?Share of respondents,%Source:OMFIF GPI survey 2022YesNo omfif.orgOMFIF GLOBAL PUBLIC INVESTO

79、R 2022/KEY FINDINGS1415RESERVES MANAGERS PLAN TO SHIFT OUT OF LONGER-TERM DEBTReserves managers expectations to increase,reduce or maintain allocation to government bonds in the following categoriesShare of respondents,%Source:OMFIF GPI survey 2022CENTRAL BANKS MORE CAUTIOUS ABOUT DEPLOYING RESERVES

80、What is the maximum share of your reserves you would be willing to use in the event of a currency crisis?Share of respondents,%Source:OMFIF GPI survey 2021-22YEARS of ultra-low interest rates have seen government bond markets moving further along the maturity curve,with investors locking in higher r

81、eturns via more duration.With liquidity at a premium,that trend could now be over.Reserves managers are set to reduce their holdings of longer-term debt,while moving into more liquid holdings at the shorter end of the curve.These anticipated shifts also mirror investors expectations that inflation w

82、ill remain higher for longer.In 2021,by contrast,bonds with maturities of more than five years showed a net positive shift in allocations.SOME 49%of reserves managers see a case for continued accumulation of foreign exchange reserves,while only 16%do not.Almost 60%consider a draw-down of FX reserves

83、 as the most effective safety net during a period of stress,up from 47%last year.And yet the percentage that would deploy more than 30%of their reserves in the event of a currency crisis has almost halved,from 59%in 2021 to just 33%this year.Almost as many would now be prepared to use only a minimal

84、 amount of reserves.Are central banks moving towards a position that deployment of reserves during currency crises is ineffective?And if so,are they prepared to put more reserves to work in order to generate returns?56007080901000-1 year maturity1-5 year maturity5-10 year maturity10+year

85、maturityIncreaseMaintainReduce00700-5%6-10%11-15%16-20%21-30%31%+20212022FIXED INCOME PORTFOLIOS SHIFT TO SHORTER DURATIONCENTRAL BANKS PREPARED TO USE FEWER RESERVES IN A CRISIS omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/KEY FINDINGS1617ALLOCATIONS TO NEW FORMS OF SUSTAINABLE BONDS RISE

86、SHARPLYWhich sustainable assets do you invest in?Share of respondents,%Source:OMFIF GPI survey 0405060708090100Green bondsOther sustainable bonds(e.g.transition,social,blue,SDG bonds)Green/sustainable equitiesSustainable mutual fundsSustainable ETFsClimate-aligned bonds20212022OF the

87、reserves managers that responded to this years survey section on holdings of ESG assets,just one from a conflict-torn developing market does not have any green bonds in its portfolio.Interest in other forms of sustainable assets,such as social bonds,has grown rapidly over the past 12 months,with mor

88、e than 40%of central banks now owning them.The proportion of reserves managers that do not implement environmental,social and governance criteria in their investment approach is falling,from over 50%in 2020 to 43%in 2022.Thats the positive news.But barriers remain.The problems caused by lack of rele

89、vant and accurate data or information long a critical failing of the drive for ESG investment are actually growing.More than 60%cite lack of data as a major issue,compared to less than 50%in 2022.It seems likely that,as reserves managers invest more,they are becoming more familiar with the difficult

90、ies of monitoring their ESG portfolios.ASIA PACIFIC remains the favoured destination for further investment for many reserves managers.More than 33%plan to increase their allocations to the region.But assets to invest in can be hard to find.This years research shows that the aggregate portfolio inve

91、sted in Asia actually fell compared to 2021,to 11%from 13%.Thats despite the fact that,in last years survey,more than 40%of respondents said they planned to increase their holdings in the region.External managers report that many official institutions in Asia are changing their mandates to invest mo

92、re in overseas markets because they lack investment opportunities in their domestic markets.The competition for Asian assets is therefore likely to be fierce,leaving many reserves managers disappointed.WHILE REMAINING TOP OF RESERVE MANAGERS EXPECTED INVESTMENT PLANSReserves managers expectations to

93、 increase,reduce or maintain exposure to the following regionsShare of respondents,%Source:OMFIF GPI survey 2021-22ALLOCATIONS TO ASIA PACIFIC DECLINEWhat percentage of your total portfolio is invested in the following regions?Average response,%0070809020222EuropeNor

94、th AmericaAsia PacificSignificantly increaseModerately increaseStay the sameModerately decreaseSignificantly decrease0070North AmericaEuropeAsia Pacifc20212022GREEN BONDS ARE BECOMING A UNIVERSALLY ACCEPTED ASSET CLASSRESERVES MANAGERS MAY STRUGGLE TO EXECUTE ASSET ALLOCATION PLANS IN ASI

95、A omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/KEY FINDINGS1819RISE OF THE RENMINBI MAY BE STARTING TO SLOWHow do you see the role of the renminbi as a reserve currency developing over the next 10 years,and how will you respond?Share of respondents,%Source:OMFIF GPI survey 2022ALLOCATIONS to renminbi

96、reserves rose year on year,from 1.75%to 2.5%.In Asia Pacific and Africa,close to 5%of all reserves are now held in the Chinese currency.Around 30%of respondents plan to increase their renminbi holdings,a small rise on last year.Diversification,the increasing importance of China in the global economy

97、 and higher yields are all cited as factors encouraging central banks to invest more in Chinese assets.More than 80%of reserves managers who answered our survey questions on China now own Chinese government bonds.But there are signs that the rise of the renminbi is slowing.Some 60%of respondents in

98、2022 say the role of the renminbi as a reserve currency over the next 10 years will increase,and they will become more involved,compared to almost 70%holding that view last year.And geopolitical concerns are the top reason why reserves managers might not invest more in China(71%),closely followed by

99、 poor market infrastructure(63%).900708090100AllEuropeLatin America&CaribbeanMiddle EastAsia PacificAfricaIts role will increase,and we will aim to become more involved Its role will increase,but we will not change our stance Neither its role nor our stance will change Its role will decre

100、ase;it will not in the end challenge the existing reserve currency order Other NEXT Generation EU bonds were launched to great fanfare in 2021,a new 750bn borrowing programme which would not only rebuild Europe post-Covid-19,but also transform the regions bond markets and promote the euros position

101、as a reserve asset.But just 13%of reserves managers surveyed have purchased NGEU bonds to date,including only 27%of European central banks.The euros share of currency allocations fell slightly this year,to 24%from 28%.However,close to 50%of respondents believe NGEU bonds will become a permanent feat

102、ure of reserves portfolios in the future,and 67%think that plans to issue one-third of all NGEU bonds in sustainable format will boost the global green bond market.10MOST RESERVES MANAGERS HAVE SO FAR SHUNNED NGEU BONDSHave you purchased bonds from Next Generation EU since issuance began in 2021?Sha

103、re of respondents,%Source:OMFIF GPI survey 2021-22ALLOCATIONS TO EURO ASSETS HAVE DECLINED OVER THE PAST 12 MONTHSWhat percentage of your portfolio is allocated to the following currencies?Average response,%1387YesNo00DollarEuro20212022RENMINBI RISE CONTINUES,BUT MAJOR OBSTACLES REMAINEUR

104、O STRUGGLING TO GAIN TRACTION AS RESERVE ASSETOMFIF GLOBAL PUBLIC INVESTOR 2022/MACRO ENVIRONMENT 20 omfif.org211.MACRO ENVIRONMENTRESERVES MANAGERS FACE TOUGH NEW PARADIGMHeightened volatility,risk and uncertainty.The return of inflation.Another economic slowdown.The macroeconomic environment for c

105、entral bank investors has been upended.By Neil Williams and Taylor Pearce.A year ago,the central theme of OMFIFs annual Global Public Investor was GPIs continued drive towards portfolio diversification in a lower-for-longer interest rate environment.Last year,76%of reserves managers listed major cen

106、tral banks moving further into negative rate territory as a primary concern,while only 16%reported geopolitical tensions and protectionism as one of the most important channels affecting reserves management.Inflation was not yet a major concern for most.This years findings could not be more differen

107、t.Even before the Russian invasion of Ukraine,winding down pandemic emergency measures and prolonged supply chain disruptions posed daunting challenges for policy-makers.And yet,before markets had fully recovered from omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/MACRO ENVIRONMENT 22232.HIGH,VOLATILE I

108、NFLATION EXPECTED OVER SHORT TERMHow do you anticipate the rate of inflation will evolve across most major economies over the next 24 months?Share of respondents,%Source:OMFIF GPI survey 20221.INFLATION AND GEOPOLITICAL TENSIONS DOMINANT FACTORS AFFECTING RESERVES MANAGEMENTWhat do you see as the mo

109、st important factors affecting reserves managers in the current economic environment?Share of respondents,%Source:OMFIF GPI survey 2022the once-in-a-lifetime pandemic shock,they were thrust into a new paradigm one of exponentially heightened volatility,risk and uncertainty.Skyrocketing commodity and

110、 energy prices stemming from the war in Ukraine have led to the highest inflation rates in a generation in most major economies.Swift and decisive sanctions from the West led Russia to become a pariah of global financial markets and payment systems overnight,further fragmenting the global economy.As

111、 a result,central bank reserves managers are preparing for an environment of rising inflation and geopolitical risk.Higher inflation is expected by most,with a significant share appearing to expect stagflation.Our survey findings suggest that,by far,the bulk of respondents consider inflation(86%)and

112、 geopolitical tensions(85%)to be the dominant factors affecting their operations(Figure 1).Across all regions,the majority expects inflation to remain high(49%)and/or volatile(27%)over the coming two years.This is consistent with the forecast horizon of most central bank interest rate setters.Within

113、 that time,though,more than 20%expect it to return to the pre-Covid-19 levels(Figure 2).We found considerable regional divergence on inflation expectations,specifically between Asia and the rest of the world.While 60%of reserves mangers in the Asia Pacific region anticipate inflation in 2023-24 bein

114、g more volatile than in the past three decades,only 18%of respondents from the rest of the world expected such prolonged volatility.Furthermore,while only 13%of respondents in Asia Pacific predicted that inflation will remain sustainably higher,58%of respondents from other regions expected heightene

115、d inflation to remain over the short term.This most likely reflects the regions calmer economic waters and relative detachment from the war in Ukraine.Consistent with heightened inflation expectations are respondents other concerns of a protracted growth slowdown,partly as a legacy of Covid-19 90%st

116、ill see the pandemic as a major driver of economic activity.In the current monetary tightening cycle(rate rises,the end of quantitative easing and moves towards active quantitative tightening),this is understandable.As is the fact that,with 4.AMBIGUITY ON WHETHER CURRENT MONETARY ARRANGEMENTS SHOULD

117、 BE RECONSIDEREDDo you believe that monetary policy needs to be actively reconsidered to remove this influence?Share of respondents,%Source:OMFIF GPI survey 20223.INFLUENCE OF MONETARY POLICY CONSIDERED SLIGHTLY WEAKER THAN LAST YEARDo you believe that monetary policy is now having an excessive infl

118、uence on financial markets and pricing?Share of respondents,%Source:OMFIF GPI survey 2021-22these processes underway and new factors in play(notably the war in Ukraine),the influence of monetary policy in the macro environment is considered slightly weaker than it was last year.The percentage of res

119、pondents who reported that monetary policy is having an excessive influence on financial markets and pricing fell to 64%this year from 75%in 2021(Figure 3).There is debate as to how severe overheating might be:further policy tightening is anticipated,but this suggests it may be no more,and possibly

120、less,restrictive than money markets expect.Correspondingly,55%of respondents highlighted major central banks ending asset purchasing programmes as one of the most important factors affecting reserves management(Figure 1).Sentiments surrounding QE were mixed,with some more critical than others.One re

121、spondent commented that QE was creating price bubbles,with another maintaining that the level of intervention within the market by major central banks(pumping cash into financial systems)has led to overpricing of some financial instruments.Others,while still insisting that QE should be reconsidered,

122、remain more sanguine.Huge monetary stimuli adopted during the global financial crisis and Covid-19 pandemic have inevitably influenced the cost of money significantly,one commented,emphasising that gradual exits from such policies affect the financial markets markedly as expected.Another respondent

123、remained confident that the influence of monetary policy will wane as conditions normalise.Despite sentiment that monetary policy is having an excessive influence on markets and pricing,the majority of reserves managers do not believe central banks monetary policy should be actively reconsidered(Fig

124、ure 4).This is similar to last years share,decreasing by only three percentage points(from 58%in 2021).Respondents comments back this up.One maintained that this influence is inevitable,given the unpredictable impact of Covid-19,inflation,geopolitical tensions and other factors have had on economies

125、 and the need for interventions.Another noted,Although it can be reconsidered to minimise the volatility it may create,it seems hard to remove such influence totally.Given these emerging themes,for those affected there is acceptance that little can usefully be done to break the link between monetary

126、 policy announcements and market reaction especially given QE such that current arrangements should not be reconsidered.In tandem,these factors are contributing to an increasingly complex macro environment,as policy-makers and market practitioners enter uncharted territory.90%still see Covid-19 as a

127、 major driver of economic activity57%of reserves managers do not believe central banks monetary policy should be actively reconsidered49%of respondents expect inflation to remain high over next two years20%of respondents expect inflation to return to pre-Covid-19 levels over next two yearsCENTRAL BA

128、NK RESERVES MANAGERS ARE PREPARING FOR AN ENVIRONMENT OF RISING INFLATION AND GEOPOLITICAL RISK.HIGHER INFLATION IS EXPECTED BY MOST,WITH A SIGNIFICANT SHARE APPEARING TO EXPECT STAGFLATION.00708090100InflationGeopolitical tensions and protectionismMajor central banks ending asset purchas

129、e programmesProtracted slowdown in real economic activityIncreased focus on sustainableinvestments Rising levels of public debt in developed economiesDebt defaults or haircuts in emerging economies 0070It will remain sustainably higherIt will be more volatile thanin the past three decades

130、,given a number of factorsIt will remain higher for ashort period and then return to the 2010-19 averageIt will quickly fallback to the2010-19 average020406080100YesNo202120224555YesNoOMFIF GLOBAL PUBLIC INVESTOR 2022/MACRO ENVIRONMENT 24INFLATIONS return will impact the strategic allocation of all

131、long-term investors,especially central banks and sovereign funds.The Federal Reserve is normalising monetary policy swiftly,which has caused a rapid rise in long-term interest rates in the US and,to a lesser extent,Europe.This has helped strengthen the dollar.At the same time,a sharp economic slowdo

132、wn(or even recession)seems to be on the cards in both Europe and,possibly,the US.This would give many investors the opportunity to reposition themselves in US Treasuries.At current levels,US bond yields are becoming more attractive compared to Chinese bond markets.This will increase if US inflation

133、starts to slow,which is likely to happen by 2023.Does this mean that the dollar will continue to dominate the international monetary system?This old question resurfaces from time to time.Despite major structural changes in the monetary system over the past 60 years,the dollar remains the dominant in

134、ternational reserve currency.Yet the dollars share of global reserves has fallen to 59%from 71%in 1999,when the euro launched.This shows that central banks were gradually moving away from the dollar before Russias war in Ukraine.Some expect this trend to continue or even accelerate as central banks

135、in emerging economies seek to further diversify their reserves mix.The freezing of the Russian central banks assets following the invasion of Ukraine was a reminder to all sovereign investors that their allocation choices have a strategic dimension.The US administration through Treasury Secretary Ja

136、net Yellen is now promoting the concept of friend-shoring,whereby countries commit to working with others that adhere to a set of norms and values about how to operate in the global economy and how to manage the global economic system.Western countries,seeking to increase their resilience and strate

137、gic independence,will naturally take this argument into account.Recall that,historically,military strength and monetary dominance are intertwined.Countries around China will,for this very reason,seek to increase their exposure to the renminbi,at the expense of the dollar.The launch of the digital re

138、nminbi will certainly help them to do so.The long-term impact the war in Ukraine will have on the international monetary system is uncertain.It depends on how countries react,as geopolitical factors will increasingly be taken into account.In a fragmented and multipolar world there can no longer be o

139、ne dominant currency.There is no doubt that the renminbi will become more international,but this may be limited to a few countries.While the renminbi will play an increasingly important role,it will not supplant the dollar.SPONSORS COMMENTRENMINBIS RISE WILL NOT CHALLENGE DOLLAR DOMINANCEInternation

140、al monetary system set to become multipolar as geopolitics becomes an increasingly important factor,writes Didier Borowski,head of global views,Amundi Institute.THE FREEZING OF THE RUSSIAN CENTRAL BANKS ASSETS FOLLOWING THE INVASION OF UKRAINE WAS A REMINDER TO ALL SOVEREIGN INVESTORS THAT THEIR ALL

141、OCATION CHOICES HAVE A STRATEGIC DIMENSION.SustainablePolicyInstituteThe Sustainable Policy Institute is a high-level community designed to meet the policy,regulatory and investment challenges posed by environmental,social and governance factors.Membership offers insight through Analysis and Meeting

142、s,drawn from the expertise of OMFIFs in-house specialists and global network of public and private sector members.The Institute publishes regular data,updates members on new developments and innovations and convenes discussions in a variety of formats to help shape the sustainability agenda.omfif.or

143、g/spiFor membership enquiries,please contact Mingiyan.Shalkhakovomfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 26 omfif.org272.ASSET ALLOCATIONTIME TO GET MORE ACTIVE?In the face of short-term volatility,reserves managers are opting for longer-term strategies.By Neil Williams and Taylor

144、 Pearce.HOW is the challenging macro environment impacting central bank reserves managers investment objectives?And how might asset allocations shift as a result?This years survey findings suggest that despite recognition of and,to a large part,preparation for a changing macro climate,the majority o

145、f reserves managers seem unfazed.Traditional approaches will generally be followed even if it means a lower return:the objective being to preserve capital,maintain liquidity and diversify.When asked how the elevated rate of inflation across most major economies will affect their decision-making,47%o

146、f this years survey respondents answered that they plan to maintain their traditional risk approach and have accepted a lower real return.An additional 22%stated that their decision-making has not been affected at all.Respondents were split on whether economic and market volatility will prompt them

147、to adopt a more active approach to portfolio management,Sponsored by omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 2829share,meeting an array of diversification needs(Figure 3).Unsurprisingly,most of the respondents(71%)invest in physical gold,with a few others investing indirectly via

148、 futures markets(6%)and mining industries(3%).Although golds strong presence might be associated with dysfunctional economies inflation build-up and/or default risk its importance to reserves management this year appears to be consistent with previous years.In 2020,71%directly invested in gold and o

149、nly slightly fewer(65%)in 2021(see Chapter 5).Notably,more traditional assets will be sought in the next one to two years,with an even greater allocation to bonds,equities and gold(Figure 4).A net increase of 22%is anticipated in government bonds,along with an 18%net increase in quasi-government bon

150、ds and a 20%net increase in corporate bonds.Net increases in gold and equities of around 18%and 14%respectively are also anticipated.This is consistent with diversification,but it may surprise inflation seekers that bonds are higher and may surprise growth optimists that there will be only a moderat

151、e uplift in equities and gold.The only real downscaling is expected in cash,suggesting reserves mangers have thus far little trepidation of aggressively rising rates.This may also displease deflationists.Compared with previous years,reserves managers appetites for bonds over the next two years have

152、increased across the board,as has 3.PORTFOLIO COMPOSITION STILL FAVOURS TRADITIONAL ASSETS Share of total portfolio invested in following asset classes.Average response,%Note:Other includes supranationals,special drawing rights,collateralised securities and fixed deposits.4.NO SIGNIFICANT FLIGHT FRO

153、M ASSET CLASSES LESS PROTECTED FROM INFLATION Reserves managers expectations to increase,reduce or maintain allocation to the following asset classes over the next 12-24 months.Share of respondents,%Source:OMFIF GPI survey 2022Source:OMFIF GPI survey 202205540Government bondsCashQuasi-gov

154、ernment bondsGoldCorporate bondsEquitiesOther00708090100InfrastructurePrivate equityReal estateCashEquitiesGoldCorporate bondsQuasi-government bondsGovernment bondsSignificantly increaseModerately increaseStay the sameModerately decreaseSignificantly decrease1.CAPITAL PRESERVATION AND LIQ

155、UIDITY STAND OUT AS PRIMARY ASSET ALLOCATION OBJECTIVESWhat is your investment objective?Please rank top three in order of importance.Share of respondents,%Source:OMFIF GPI survey 20222.CAPITAL PRESERVATION,VOLATILITY REDUCTION AND INCREASING RISK-ADJUSTED RETURNS KEY DRIVERS OF DIVERSIFICATIONWhat

156、are/have been the main reasons for the diversification of reserves?Please rank the top three in order of importance.Share of respondents,%.Note:Ensuring liquidity was not listed as an option in previous surveys.It was included this year due to feedback from respondents,many of whom(25%)listed it as

157、a primary objective under Other in previous years.007080Other please specifyFollowing peers/leadersIncreasing inflation-adjusted real returnsBigger reservesImprove liquidityIncreasing risk-adjusted returnsRisk/volatility reductionCapital preservation05060708090100Other please s

158、pecifyInflation+x bpsNominal targetReference portfolioTarget return in%Ensuring liquidityCapital preservation123with 53%stating yes and 47%answering no.This division was also reflected in respondents comments.One insisted that higher volatility in the financial markets requires a more active managem

159、ent approach.Another commented,We will try to adopt a more defensive strategy in order to guarantee capital preservation and enhance returns in the current conditions.Nevertheless,a sizeable share of respondents reported already having sufficiently active portfolio management practices.We adopt an a

160、ctive approach to a very small portion of reserves and we are not planning to make changes on this front,noted one,a sentiment which was echoed by many others.It appears that reserves managers are opting for longer-term strategies,refraining from drastically changing course as a result of increased

161、short-term volatility and heightened uncertainty.Across the board,capital preservation stands out as the primary asset allocation objective this year,with 97%of reserves managers listing it as a top-three investment objective,and 61%listing it as the number one consideration(Figure 1).Ensuring liqui

162、dity was also listed by 97%as one of the top-three asset allocation considerations,with 29%listing it as their top investment objective.This has remained relatively consistent with previous years findings,with 75%listing capital preservation as the top objective in 2021.Capital preservation has rise

163、n drastically in importance for reserves managers.It is now the top reason for diversification of assets among our polling group and has increased to 72%from 29%in 2020,the largest rise(by percentage points)across categories.Increasing risk-adjusted returns remains the number one reported driver of

164、diversification,with 75%reporting it among their top-three considerations.Risk/volatility reduction remains a key objective for 68%of respondents,although capital preservation ranked slightly higher this year,a reversal of the previous two years findings.Each of these points should be considered in

165、a growing inflation environment.But their ascent as drivers of diversification started early and do not appear to be symptomatic of a sudden pick-up in inflation fear this year.The composition of assets is also revealing,with traditional risk-on assets still in vogue(such as equities and emerging ma

166、rkets),and yet seemingly no rush for the door from less inflation-protected assets such as fixed income.Bonds(government,quasi-government and corporate)still comprise on average 55%of portfolio composition,with equities(3%),cash(17%)and gold(9%)remaining a sizeable PERCENTAGE OF RESERVE MANAGERS WHO

167、 INVEST DIRECTLY IN PHYSICAL GOLD:2020:71%2021:65%2022:71%Source:OMFIF GPI survey 2022 omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 3031anticipated demand for gold(Figure 5).Equities and cash both saw a marginal net decrease,but neither looks substantially different to last year.As al

168、location intentions over the short term seem to be a continuation of previous trends,this suggests little obvious fear that monetary tightening will be aggressive.Consistent with that is an intention to move down the spectrum in the next two years to shorter-maturity bonds(Figure 6).The anticipated

169、move is true for all maturity categories under 10 years,while a net reduction of 9%is anticipated for more than 10-year maturity bonds.This looks in line with expectations of higher inflation,which would disproportionally impede longer maturities,and possibly of quantitative tightening.Respondents c

170、omments echo this,with one expressing an intention to reduce the impact of the rising rates environment by shortening our portfolios duration,while others added that they plan to decrease duration exposure and to shift towards shorter duration.There is a higher allocation expected for both triple-A(

171、15%net increase)and non-triple-A(22%net increase)investment-grade sovereign debt(Figure 6).The only category where net reductions are expected is for sub-investment grade debt(around 9%net decrease).However,neither the small net reduction planned nor the more negative stance compared with 2021 appea

172、rs to be a sign of sudden risk aversion.DEVELOPED MARKET CURRENCIES AND ASSETS STILL FAVOURED FOR NOWAt least three other aspects seem to rule out increasing risk aversion in response to changing events.These also seem consistent with a continuation of longer-term strategies,rather than any short-te

173、rm panic.First,while exposure to developed markets outweighs that to traditionally higher-risk emerging markets by a factor of 10,this is relatively unchanged from last year.This years reported portfolio allocation among survey respondents averaged 9%investment in emerging markets versus 90%in devel

174、oping markets,compared with 10%and 87%respectively in 2021.In 2023-24,North American assets are expected to lose some ground to the Asia Pacific region,which stands out as the main gainer(Figure 8).But for now,the US is still highly favoured even within developed market allocations,with exposure to

175、the North America region increasing to average 45%of regional portfolio composition,slightly higher than last years figure(43%).7.NORTH AMERICA STILL MOST FAVOURED REGION FOR PORTFOLIO INVESTMENTWhat percentage of your total portfolio is invested in the following regions?Average response,%Note:Remai

176、nder(5%)invested in supranationals,special drawing rights and gold8.ASIA PACIFIC REGION STANDS TO GAIN MOST OVER SHORT TERMReserves managers expectations to increase,reduce or maintain exposure to following regions over the next 12-24 months.Share of respondents,%Note:Russia and Turkey both classifi

177、ed as EuropeSource:OMFIF GPI survey 0506070North AmericaEuropeAsia PacificMiddle EastAfricaLatin America&Caribbean2020405060708090202222022220212022Latin Am.&CaribbeanAfricaMiddle EastEuropeNorth AmericaAsia PacificSignificantly increaseMode

178、rately increaseStay the sameModerately decreaseSignificantly decrease5.EVEN GREATER ALLOCATION TO BONDS,EQUITIES AND GOLD EXPECTED OVER SHORT TERM Reserves managers year-on-year expectations to increase,reduce or maintain allocation to the following asset classes over the next 12-24 months.Share of

179、respondents,%Source:OMFIF GPI survey 050607080902022202020222212022CashEquitiesGoldCorporatebondsGovernmentbondsSignificantly increaseModerately increaseStay the sameModerately decreaseSignificantly decrease6.MOVE TOWARDS SHORTER-MATURITY BO

180、NDS EXPECTED OVER SHORT TERMReserves managers expectations to increase,reduce or maintain allocation to following categories of government bonds over the next 12-24 months.Share of respondents,%Source:OMFIF GPI survey 202200708090100Developed market sovereign bondsEmerging market sovereig

181、n bondsSupranational debtDeveloped market agency debtEmerging market agency debtDollar-denominated sovereign debtEuro-denominated sovereign debtRenminbi-denominated sovereign debtTriple-A-rated sovereign debtNon-triple-A,investment grade sovereign debtSpeculative grade/junk sovereign debt0-1 year ma

182、turity1-5 year maturity5-10 year maturity10+year maturityIncreaseMaintainReduceTHE US IS STILL HIGHLY FAVOURED EVEN WITHIN DEVELOPED MARKET ALLOCATIONS,WITH EXPOSURE TO NORTH AMERICA INCREASING TO AVERAGE 45%OF REGIONAL PORTFOLIO COMPOSITION.Source:OMFIF GPI survey 2022 omfif.orgOMFIF GLOBAL PUBLIC

183、INVESTOR 2022/ASSET ALLOCATION 323310.DOLLAR REMAINS CURRENCY KINGPortfolio allocation to following currencies.Average response,%0070DollarEuroRenminbiSterlingAustralian dollarYenCanadiandollarSwissfrancOther11.RENMINBI ROLE ANTICIPATED TO INCREASE ACROSS ALL REGIONSHow do you see the rol

184、e of the renminbi as a reserve currency developing over the next 10 years?How will you respond?Share of respondents,%00708090100AllEuropeLatin America&CaribbeanMiddle EastAsia PacificAfricaIts role will increase,and we will aim to become more involved Its role will increase,but we will no

185、t change our stance Neither its role nor our stance will change Its role will decrease;it will not in the end challenge the existing reserve currency order Other 12.DRAWING DOWN FOREIGN EXCHANGE RESERVES BECOMING MORE IMPORTANTPlease rank the following elements of the global financial safety net in

186、order of potential effectiveness during a period of stress.Share of respondents,%Within sovereign debt,those hoping for a strong shift from US to euro area bonds might be disappointed:the survey revealed an anticipated 10%net increase in euro-denominated sovereign debt this year compared with a 15%n

187、et increase in dollar-denominated sovereign debt.This is a slight increase in anticipated investment in euro-denominated debt,but interest in dollar debt is still greater than that in euro debt,which was also the case in 2021(Figure 9).Second,while the dollar remains king,accounting for almost 60%of

188、 portfolio denominations,there seems no appreciable scramble to further overweight it(13%net increase anticipated).This looks true of other traditional safe-haven currencies,such as the Japanese yen(2%net decrease)and Swiss franc(2%net increase).Sterlings status is expected to change little(4%net in

189、crease),again accounting for only 2%of respondents global portfolios(see Chapter 5).Perhaps more telling is the approximately 30%intended net increase in renminbi exposure from 2021s 2.5%levels.The main driver is belief that the renminbi will assume a greater role as a reserve currency(87%),which lo

190、oks circular,and thus potentially self-fulfilling.This view extends across regions(Figure 11).For all jurisdictions,the renminbis attractions are its expected role in world trade(73%)and diversification potential(81%).Offsetting only some of that,geopolitics(71%)and poor market infrastructure(63%)lo

191、ok to be the main impediments to its wider use(see Chapter 5).EQUIPPING CENTRAL BANKS FOR FUTURE CRISES The third and final clue that suggests reserves managers are taking a longer-term approach pertains to the use of and willingness to deploy accumulated reserves.Doubtless reflecting previous plann

192、ing,reserves appear more than sufficient and diversified to address any future currency-led crises.The sufficient accumulation and diversification of reserves is reflected in survey respondents perception of drawing down reserves as the most effective element of the global financial safety net in a

193、crisis.In contrast,swap lines and repurchase facilities from the Federal Reserve and/or European Central Bank,as well International Monetary Fund facilities,decreased in importance(Figure 12).Perhaps suggesting a reluctance to rely on WHILE THE DOLLAR REMAINS KING,ACCOUNTING FOR ALMOST 60%OF PORTFOL

194、IO DENOMINATIONS,THERE SEEMS NO APPRECIABLE SCRAMBLE TO FURTHER OVERWEIGHT IT.9.DOLLAR-DENOMINATED SOVEREIGN DEBT FAVOURED OVER EURO IN THE SHORT TERMExpected portfolio allocation to government bonds over next 12-24 months.Share of respondents,%02040608020212022Dollar-dominatedsovereign d

195、ebtEuro-denominatedsovereign debtIncreaseMaintainReduceSource:OMFIF GPI survey 2022Source:OMFIF GPI survey 2022Source:OMFIF GPI survey 050602022220222Draw down central bank FX reservesSwap lines(e.g.from the FederalReserve or ECB,if eligible)Repurchase facilities

196、(e.g.fromthe Federal Reserve or ECB)IMF facilities(such as NAB or RFI)1=most effective234=least effectiveSource:OMFIF GPI survey 2021-22 omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 343513.FEWER RESERVES MANAGERS WILLING TO USE GREATER THAN 30%OF RESERVES IN A SHOCKMaximum share reser

197、ves managers willing to use in the event of currency crisis.Share of respondents,%14.RESERVES ARE BEING DEPLOYED TO MEET OTHER OBJECTIVESHow are excess reserves currently deployed?Please select all that apply.Share of respondents,%Source:OMFIF GPI survey 2021-22Source:OMFIF GPI survey 20220102030405

198、060700-5%6-10%11-15%16-20%21-30%31%+20204050607080Moved into sovereign fundUtilised to address import/export imbalancesUtilised to managecurrency rangesRetained and movedto riskier assetsoutside assistance or fearing negative signalling effects,49%of reserves managers reported seeing a ca

199、se for continued foreign exchange reserves accumulation,even as reserves reached their highest(nominal)levels this year,increasing by 5%from 2021 to total$16.17tn.Only 16%did not see a case for continued accumulation,and 35%remained uncertain.The share of respondents reporting the possibility of dev

200、oting 30%or more of reserves to stave off future crises(35%)is admittedly down on 2021(59%).Nevertheless,it remains at a high level with fewer fixed currency pegs to have to defend,offering some reassurance about facing economic challenges.Finally,further evidence of the sufficient diversification a

201、nd accumulation of reserves is apparent in their other reported uses,such as managing currency ranges and addressing trade imbalances.The majority of central banks reserves seem sufficient to also be used when required to move into riskier assets,with 71%reporting they deploy their excess reserves t

202、o do so(Figure 14).For many,this still leaves open the possibility of devoting 30%or more of reserves to stave off future crises(Figure 13).MINOR MOVES AMID MAJOR CHANGES Overall,reserves appear more than sufficient and diversified to address any future currency-led crises.Gold and equities are stil

203、l sought,presumably for inflation-cover.Yet,there seems little discernible flight from fixed income(government,quasi government,corporate bonds),nor from traditional risk-on assets(such as sub-investment grade and emerging markets).While many central banks expressed intentions to diversify in the fu

204、ture,developed-market currencies and assets,and particularly the US and dollar,remain most highly favoured.All this suggests scepticism about underlying economic growth prospects,an easing in yield concerns after global bonds have cheapened and,by moving towards shorter bond maturities,that money ma

205、rkets rate-tightening expectations may be overdone.87%of respondents believe the renminbi will assume a greater role as a reserve currency53%of central bank reserves managers reported that economic and market volatility will prompt them to adopt a more active approach to portfolio management61%of re

206、serves managers listed capital preservation as their primary asset allocation objective this yearTHIS YEARS REPORTED PORTFOLIO ALLOCATION AMONG SURVEY RESPONDENTS AVERAGED 9%INVESTMENT IN EMERGING MARKETS VERSUS 90%IN DEVELOPING MARKETS,COMPARED WITH 10%AND 87%RESPECTIVELY IN 2021.47%of respondents

207、plan to maintain their traditional risk approach and have accepted a lower real return omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 3637OMFIF GLOBAL PUBLIC INVESTOR 2022/ASSET ALLOCATION 36OMFIFs latest survey of global central banks revealed some predictable factors affecting reserve

208、s management in the current economic environment.Inflation,geopolitics and protectionism were the most prominent.Monetary policy tightening and the threat of economic slowdown were the other key concerns.They are familiar to many investors.Inflation,exacerbated by disruption to supply chains worldwi

209、de caused by Covid-19,war,geopolitical tensions and protectionism,is being met with tightening financial conditions even as growth begins to slow.That is translating into low expected returns for both equities and bonds,even after this years market corrections.It also suggests higher volatility in e

210、conomic cycles and markets,and tighter correlations between equities and bonds.These factors are likely to make diversification more critical but more difficult.Central bank foreign exchange reserves managers,sovereign funds and public pension funds have distinct mandates,but they all place importan

211、ce on capital preservation,meeting long-term nominal or real target returns and liquidity.These objectives look increasingly like an impossible trinity.Capital preservation is now unlikely to be achieved with core,developed market government bonds,where both volatility and yields are rising.Nominal

212、return targets appear increasingly unattainable and real return targets appear even more ambitious,given the growth and inflation outlook.And if core government bonds are relied on for liquidity,that requirement now clashes with preserving capital and meeting return targets.In our conversations with

213、 investors,we find many unsure about what to do,or unable to act because of investment policy constraints put in place when the outlook was more favourable.MANAGING RISK,SUSTAINING RETURNS,HEDGING INFLATIONOfficial institutions will need to make three major decisions over the coming months.First,cor

214、e government bonds need to be partially replaced with assets that can sustain low correlation with equities but continue to deliver positive total returns.For sovereign funds and public pension funds,liquid alternative investments such as hedge funds may have a role.For all investors,credit markets

215、will become more important,and liquidity needs are often overestimated.Investors could start to think not only in terms of liquid assets,but in terms of liquidity generators less liquid but higher-income assets such as mortgage-backed securities,high-yield bonds and private credit.Second,investors n

216、eed to assume more credit and liquidity risk in fixed income,as opposed to interest rate risk.In equity,at current valuations,taking more liquidity risk as opposed to more non-domestic risk is prudent:sovereign funds and pension funds could allocate more to private equity.After years of increasingly

217、 passive investment,active management will be necessary to sustain returns,following a decade of strong performance by beta,growth and momentum.Third,portfolios need to be better hedged against inflation.Real estate will have a key role because it can combine the capital appreciation of a real asset

218、 with highly inflation-sensitive rental cash flows,but has also exhibited resilience during most recessions.THREE HYPOTHETICAL PORTFOLIOS,RE-OPTIMISEDCan these moves respect the risk and credit-quality profiles of current portfolios?We believe they can.We created three hypothetical portfolios,based

219、on typical central bank,sovereign fund and pension fund investors among our clients.We calculated the duration and average credit rating for each portfolio and,using our latest capital market assumptions from March 2022,their expected return and volatility.We then used the same capital market assump

220、tions,but a broader menu of asset classes,to create newly optimised allocations with the same volatility,portfolio duration and credit rating.We also observed some practical constraints SPONSORS COMMENTSWITCHING GEARS FOR AN UPHILL RIDEPortfolios can be built to withstand a profoundly changed econom

221、ic environment and return outlook without blowing through their risk constraints,write Jahangir Aka,head of official institutions,Ziling Jiang,head of EMEA institutional solutions,and Joe McDonnell,head of portfolio solutions EMEA,Neuberger Berman.omfif.org37appropriate to these institutions.Turnove

222、r relative to the original allocations was capped at 30%.For sovereign funds and pension funds,we capped growth-orientated private equity at 10%.For pension funds,we required at least 10%to be allocated to both domestic government and corporate bonds.And for central banks,we subjected all new asset

223、classes to a 10%cap,required at least 10%in both dollar and non-dollar cash and capped the aggregate high quality liquid assets haircut to 20%of the value of portfolio assets.It is important to note that,even with these constraints,these mechanical optimisations should be considered as way markers f

224、or the direction of travel,rather than detailed recommendations.For the central bank investor,the optimisation reduced cash and government bonds in favour of a substantial allocation to US agency MBS and small allocations to private equity and real estate.This preserved the portfolios volatility at

225、2.2%and its duration at around four years,while lifting the portfolios annualised expected return to 2.7%from 1.9%.For our sovereign fund investor,there is much more scope to take liquidity risk(Figure 1).Cash,government bonds and gold were reduced,and MBS and real estate were introduced.Most notabl

226、y,public-market equities were completely swapped out for private equity,joining an existing allocation to local projects.We would not advocate such a radical change,but we think the result points in the right direction taking more liquidity risk and becoming more actively managed.Once again,80 basis

227、 points of expected return were added with no change to the observed risk profile.We see a similar move in the pension fund portfolio.Public-market equities were substantially cut to make room for more private equity.Exposure to domestic markets across asset classes was rejected in favour of more gl

228、obal exposure,especially in high-yield bonds.However,domestic treasuries and corporate bonds still account for 40%of the allocation,reflecting liability-matching requirements.Investors could instead manage duration with more capital-efficient,derivatives-based programmes.Hedge funds were boosted as

229、a meaningful source of liquid diversification.For the pension fund,an additional 90bp of expected annualised return was generated with the same risk profile.MORE RESILIENCEThe world has changed profoundly over the past six months.Putting aside the war in Ukraine,inflation in developed economies is a

230、t levels unseen for 40 years and interest rates are rapidly rising after more than a decade of loosening financial conditions.The world is facing the first genuine cyclical economic slowdown since the beginning of the century and a broad correction to stretched equity and bond valuations.All types o

231、f official institution portfolios can be made more resilient against the emerging conditions with relatively modest re-allocations that do not consume more risk budget.We can never be sure that these new allocations will outperform the old ones,but we can be sure that they are more thoroughly divers

232、ified.This raises the probability of acceptable performance in a wider range of economic and market scenarios.OFFICIAL INSTITUTIONS WILL NEED TO MAKE THREE MAJOR DECISIONS OVER THE COMING MONTHS.1.SOVEREIGN FUNDS TAKING LIQUIDITY RISK FOR MORE GROWTH POTENTIAL Source:Bloomberg,Neuberger BermanCurren

233、tProposedDollar cash 2.7%Real estate6.5%Real estate7.5%Local projects11.3%Local projects11.3%EMD 2%EMD 2%Global treasuries 46.3%Global treasuries 38.9%US agency MBS13.9%Gold13.7%Private equity4.7%Private equity 19.2%Gold7%Developed markets equities12.8%Hedge funds 0.2%13.9%9.6%5.3%1.0%0.2%0.0%0.0%0.

234、0%0.0%-0.4%-2.7%-6.7%-7.4%-12.8%-15%-10%-5%0%5%10%15%Allocation changeUS agency MBSPE-growthPE-buyoutRE-opportunisticHedge fundsEmerging market debtLocal energy projectsRE-CoreRE-value addedPE-infrastructure/OtherDollar cashGoldGlobal treasuriesDeveloping market equitiesCurrentProposedExpected retur

235、n4.40%5.20%Volatility6.10%6.10%Portfolio duration4.4 yrs4.6 yrsBonds average ratingA+/AAA-/A+38 omfif.org393.EXTERNAL MANAGERS KNOWLEDGE IS KEY AS RESERVES MANAGERS LEAN ON THEIR ADVISERSDeep relationships mean external managers can help their clients navigate short-term market challenges as well as

236、 long-term strategic shifts.By Julian Jacobs.WHAT a difference a year makes.In the 2021 OMFIF survey of central banks,reserves managers revealed that accessing complex asset classes was the main reason for employing external managers.As central banks sought to diversify into higher yielding products

237、,such as credit or equities,paid for advisers played a crucial role in helping them add new products to their portfolios and manage associated risks.Twelve months later the world has changed,with the return of inflation and rising geopolitical concerns.Many investors have switched into capital prese

238、rvation mode(see Chapter 2).Diversification and knowledge transfer are now the most important part of the external/reserves manager relationship.Benchmarking performance is of growing importance(see Figure 1).This chapter summarises key findings from our survey of 73 central banks as well as our int

239、erviews OMFIF GLOBAL PUBLIC INVESTOR 2022/EXTERNAL MANAGERS omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/EXTERNAL MANAGERS 40412.EXTERNAL MANAGERS USED IN DIVERSITY OF ASSET CLASSESFor which of the following reasons do you employ external managers?Share of respondents,%Source:OMFIF GPI survey 20220102

240、030405060708090Government bondsCorporate bondsEquitiesCashInfrastructurePrivate equityReal estateOtherEquitiesCorporate bondsGovernment bondsReal estateInfrastructurePrivate equityCashOtherForeignDomesticwith external managers from Amundi,BNY Mellon,BNP Paribas,BlackRock,State Street Global Advisors

241、,Neuberger Berman and UBS Asset Management.Our findings suggest that external managers are becoming a growing part of central banks strategies,helping abet knowledge transfer,particularly at institutions in the global south,many of which have more scarce internal resources.External managers are thus

242、 a key part of the broader movement towards diversification,which is marked by growing interest in new asset classes,including exchange-traded funds.DIVERSIFICATION IN A VOLATILE WORLDExternal managers can assist central banks by helping improve their diversification.The chief reasons for central ba

243、nk reserves diversification are to preserve capital,reduce risk volatility and increase returns.Figure 1 shows that 76%of reserves managers in 2022 cited diversification as a reason that they employ external managers,up from 69%in 2021.And this emphasis on diversification may grow in response to cur

244、rent uncertainty.As Jahangir Aka,head of official institutions at Neuberger Berman,points out,Volatility is a big driver for movement towards external managers,since the diversification of instruments is greater than ever,and some central banks lack resources.Aka spoke to a crucial point about the w

245、ay central banks are using external managers in such a difficult period for the global financial system.Many central bank reserves managers are dealing with their first experience of taking losses in a long time.Massimiliano Castelli,head of strategy for global sovereign markets at UBS Asset Managem

246、ent,notes that central bank losses right now dwarf those experienced even in 2008 largely as a result of negative returns in fixed income.So far,central banks have adopted a wait and see approach in the light of the strong returns experienced over the last few years.External managers offer the oppor

247、tunity to not only reduce losses,but also to become more active investors.The growing orientation of reserves managers towards equity markets and real estate,for instance,is a good example of how central banks are,as Castelli said,diversifying and in doing so becoming more similar to pension funds.T

248、he importance of external managers in diversifying and accessing other asset classes is highlighted in Figure 2.Although the use of external managers is highest for government and corporate bonds,these results should be contextualised.First,the World Banks reserve advisory and management partnership

249、 may well be considered external management by many central banks,which inflates the figures for government bonds in particular.And second,as Johanna Lasker,chief executive officer for North America at BNP Paribas Asset Management,pointed out,If you think of a classic central bank portfolio,its stil

250、l mostly government bonds,with a small allocation to equity,if any.Indeed,the 27%40SINCE 1994,Banco de la Repblica,Colombias central bank,has been successfully running an external management programme.By developing a robust framework and creating strong partnerships that have grown and evolved throu

251、gh time,the main objectives of the programme have been met.Success is the result of the fact that the private firms that participate in the programme are chosen through a competitive bidding process,are continuously evaluated and receive frequent feedback.Based on the results each administrator obta

252、ins,the amount managed might be modified or their participation in the programme may be reviewed.This robust set of processes has been developed over time and continues to evolve in order to strengthen the methodologies and allow the bank to select and keep the best set of managers for the mandate.O

253、ne of the main objectives of the programme is to enhance the performance of Colombias foreign reserves investment portfolio.In this respect,firms chosen to participate in the programme are highly capable in their analyses of financial markets and have a sophisticated infrastructure that can be taken

254、 advantage of to define investment strategies.By having a strong set of different managers with varying views,the portfolio has benefited from a number of investment ideas that have provided diversification and positive relative returns.Additionally,close interaction with managers generates positive

255、 feedback.Allowed asset classes and investment guidelines have changed through time in order to permit relevant strategies that are in line with the risk and return objectives of the mandate.Managers also play an important role in that they may have teams in place that specialise in asset classes th

256、at are not managed by internal investment teams.If managers are able to handle new asset classes and relevant strategies are added,more investment opportunities arise and greater diversification benefits can be obtained.External managers are also key allies in that they provide training and knowledg

257、e transfers to the banks staff and support its research efforts.Not only do managers offer investment feedback and ideas,but they have also been very important partners in providing training and collaborating on projects that include different areas of the investment role,such as analysing risk and

258、attribution tools,generating new risk measurement methodologies,providing scenario analysis for managed portfolios and preparing presentations and meetings on current topics,among others.This has been beneficial in the development of many projects and initiatives and should continue to be an importa

259、nt factor in years to come.We expect to continue developing the external management programme.Markets will continue to evolve and moments of volatility and uncertainty will occur again.Active management will remain relevant and portfolios will benefit from a diversity of ideas and strategies.Given o

260、ur experience,we can strongly believe in the programme built over almost 30 years while recognising that we will have to continue to be dedicated to it in order to keep reaping the benefits.SELECTION,EVALUATION AND COMMUNICATION CONTRIBUTE TO SUCCESSFUL EXTERNAL MANAGEMENT PROGRAMMEColombias central

261、 bank has been working successfully with external managers for over 30 years.Heres what it has learnt,writes Andres Cabrales,acting head,international investment department,Banco de la Repblica.BY HAVING A STRONG SET OF DIFFERENT MANAGERS WITH VARYING VIEWS,THE PORTFOLIO HAS BENEFITED FROM A NUMBER

262、OF INVESTMENT IDEAS THAT HAVE PROVIDED DIVERSIFICATION AND POSITIVE RELATIVE RETURNS.OMFIF GLOBAL PUBLIC INVESTOR 2022/EXTERNAL MANAGERS OPINION1.CENTRAL BANKS USE EXTERNAL MANAGERS FOR KNOWLEDGE TRANSFER AND DIVERSIFICATIONFor which of the following reasons do you employ external managers?Share of

263、respondents,%Note:Knowledge transfer not included as an option in 2021.Source:OMFIF GPI survey 05060708090Knowledge transfer(i.e.learning howto manage complexasset classesinternally)DiversificationAccessing complex asset classesBenchmarking theperformance ofinternal teamsReducing inve

264、stment expenses Other please specify2021202276%Three-quarters of reserves managers who turned to external managers did so to aid diversification18%Nearly one-fifth of reserves managers find moving into ETFs appealing omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/EXTERNAL MANAGERS 42434.ETFs USED PRIMAR

265、ILY FOR OPERATIONAL EFFICIENCY What share of your portfolio is held in the form of ETFs?Average response,%5.ALLOCATIONS TO ETFs AVERAGE 1%OF CENTRAL BANK PORTFOLIO;HIGHEST IN ASIAFor which of the following purposes do you use ETFs?Select all that apply.Share of respondents,%007080OtherTo

266、meet ESG objectivesHigher liquidityAccessing complex and/or illiquid asset classesCost efficiencyOperational efficiency0.98000.150.431.232.1500.511.522.5AllMiddle EastNorth AmericaLatin America&CaribbeanAfricaEuropeAsia Pacific1882YesNousage of external managers for equities and 38%for other(e.g.sup

267、ranationals and mortgage-backed securities)is high relative to the average equity allocation of a central bank reserves portfolio.This indicates a particular emphasis in central bank usage of external managers on equity.Moreover,if we studied the percentage of central bank equities that are handled

268、by external managers,we might see a more complete picture of the role external managers play in supporting central banks behaviour in equity markets.As Isabelle Mateos y Lago,global head of the official institutions group at BlackRock,remarked,In our experience,central banks are more likely to turn

269、to external asset managers when they diversify into new asset classes;when it comes to equity allocations,which according to our research only about one-third of central banks in 2019 were allowed to invest their reserves in,the GPI survey share of 27%recourse to external managers suggests it is the

270、 overwhelmingly dominant practice.THE IMPORTANCE OF KNOWLEDGE TRANSFERBeyond the growing significance of external managers to central banks diversification efforts,they are used by many central banks as part of knowledge transfer 85%of central bank survey respondents cited this.The point here is for

271、 reserves managers to utilise the deep institutional knowledge,flexibility and understanding of new financial instruments,portfolio management techniques and operating models that asset managers and private financial institutions possess.The importance of passing on such institutional knowledge is p

272、articularly pronounced for central banks with fewer resources.This explains the higher rates of external manager usage in the global south.External managers are responsible for 13%of assets under management for all central banks in our survey(Figure 3).Yet this number is larger for Latin America(24%

273、),Africa(16%)and the Middle East(15%).External managers,by contrast,handle 6%of assets under management in Europe.In total,this comes out to an estimated$410bn of survey respondents assets handled by external managers and average fees of 0.05%(or five basis points)of central bank assets under manage

274、ment among respondents.Xavier van den Brande,segment head for asset owners,Europe at BNY Mellon,explained that central banks expect to learn more about asset classes by working with external managers and the diversification away from fixed income means some global south central banks will benefit fr

275、om using external managers.As a consequence,some central banks not only view external managers as a helpful way to diversify,but,perhaps more importantly,as a tool to learn about markets,financial instruments,data and complex asset classes.Knowledge transfer tends to be tailored to central bank need

276、s.Aka of Neuberger Berman explained that We have training that is bespoke for them,including training them on a more holistic view of how to manage money and if there is a specific area,we help with that too.Eric Dussoubs,head of institutional clients coverage at Amundi,discusses how,in particular,t

277、he institutional knowledge of external managers around regulation,complexity and data are areas where central banks ask for support.This element is likely to grow in importance for central banks,given the increasing digitalisation and complexity of the financial sector as well as the role of sophist

278、icated data science analyses.Lasker said that there is a need among central banks to understand artificial intelligence and data science,and now digital currencies as well.Regardless of whether this knowledge transfer induces changes to a reserves managers portfolio,the need for central banks to emp

279、loy external managers to better understand the changing dynamics of a digital financial system may continue to grow.THE ROLE OF ETFs AND EQUITY MARKETSThe drive for diversification is not borne out in the level of ETF and equity usage by central banks.Figure 5 shows that an average of 1%of central b

280、ank portfolios are invested in ETFs.Such a small allocation is notable given that ETFs should,in theory,represent a particularly attractive vehicle for central banks to enter equity markets.The share of portfolios allocated to ETFs is highest in Asia at 2%.These low levels of ETF usage may be changi

281、ng,however.As Brande at BNY Mellon commented,ETFs are an obvious choice for central banks without sufficient internal expertise because they are a low-cost way to get exposure to equity markets.This promises more diversification,making portfolios more resilient across different economic and financia

282、l conditions.And although,as Castelli said,central banks with equity exposures are seeing losses in the range of 6%to 8%,he predicts that the diversification trend will continue.Figure 4 shows the main reasons central banks gave for using ETFs within their portfolios.Chief among them were operationa

283、l efficiency(74%),cost efficiency(48%)and access to complex and/or illiquid asset classes(44%).Figure 6 highlights the planned movement of ETF holdings by central banks over the next 12-24 months.The results suggest that,even in an environment with significant uncertainty in equity markets,the prosp

284、ect of moving into ETFs remains appealing to nearly one-fifth of reserves managers.GROWING OPPORTUNITY AMID RISING UNCERTAINTYOur findings from surveying central bank reserves managers and interviewing external managers offer a window into both the uncertainty of the current macro environment and th

285、e opportunity some central banks see for the future.Geopolitical crises,inflationary shocks and prospects for recession are posing considerable challenges for reserves managers.With many reserves managers grappling with the most significant losses they have seen in their career,many central banks ha

286、ve slowed their movement of capital.And yet,the growing use of external managers for diversification(Figure 1)indicates a possible openness to new asset classes.This is made clear by the role these managers play as part of knowledge transfer and in helping central banks understand new markets.Such d

287、evelopments point to trends in central bank reserves management that may outlast the shock of the current geopolitical and inflation crises.Indeed,as the movement towards ETFs indicates,there is a growing focus among reserves managers on diversifying their portfolios and becoming more innovative in

288、their investment strategies.With this comes the prospect of higher returns,but also greater risk.6.18%OF CENTRAL BANKS PLAN TO INCREASE ETF HOLDINGSDo you plan to increase the share of your portfolio held in the form of ETFs in the next 12-24 months?Share of respondents,%3.EXTERNAL MANAGERS RESPONSI

289、BLE FOR AVERAGE 13%OF CENTRAL BANK ASSETS UNDER MANAGEMENTWhat percentage of your assets under management is managed by external managers?Average response,%12.65.813.215.016.424.205540AllEuropeAsia PacificMiddle EastAfricaLatin America&CaribbeanSource:OMFIF GPI survey 2022Source:OMFIF GPI

290、 survey 2022Source:OMFIF GPI survey 2022Source:OMFIF GPI survey 202244 omfif.org454.SUSTAINABLE BONDSBARRIERS TO ENTRY HAMPER SUSTAINABILITY PROGRESSAs central banks mandates grow to include ESG considerations,so too does reserves managers interest in social bonds.By Taylor Pearce.THOUGH late to the

291、 party compared to their institutional peers,central banks are continuing to expand their environmental,social and governance considerations.Social bonds,or bonds whose funds are earmarked for projects with positive social outcomes,are a new and notable asset class falling under the sustainable umbr

292、ella.This years GPI survey examined the ESG considerations of central banks with a specific focus on social bonds as a burgeoning ESG asset class.Consistent with our other ESG findings,we found that the majority of central banks expressed existing or future interest in social bonds though significan

293、t barriers to their adoption as a suitable reserves asset class persist.CENTRAL BANKS EXPANDING ESG MANDATES This year,more central banks than ever reported implementing some form of ESG criteria.Compared to 2021,OMFIFs research reveals progress in central banks ESG practices across nearly all categ

294、ories.These include investment in sustainable finance assets,exercising exclusion/negative screening,implementing ESG integration,implementing COMPARED WITH 2021,WE FOUND A MARGINAL INCREASE IN CENTRAL BANKS ESG PRACTICES ACROSS NEARLY ALL CATEGORIES.OMFIF GLOBAL PUBLIC INVESTOR 2022/SUSTAINABLE BON

295、DS omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/SUSTAINABLE BONDS46471.MORE CENTRAL BANKS THAN EVER IMPLEMENTING ESG CRITERIAIn which of the following ways do you implement ESG?Select all that apply.Share of respondents,%2.INSUFFICIENT DATA HIGHEST BARRIER TO FURTHER ESG IMPLEMENTATIONWhat do you see

296、as the barriers to ESG adoption/further implementation in your reserves management?Select all that apply.Share of respondents,%Note:Mandate to maintain market neutrality first included as option in 2022Source:OMFIF GPI survey 2020-22Source:OMFIF GPI survey 0506070ESG integrationThemat

297、ic investingImpact investingOtherWe do not implement ESG202020212022Investment in sustainable finance assets,e.g.green bondsExclusions/negative screening Active ownership/corporate engagement Positive screening/best-in-class strategies 007080Insufficient data orinformationDoes not fit wit

298、h fund investment strategyMore complex than traditional assetsHigher costLegal/regulatory restrictionsLack of suitable projectsMandate tomaintain marketneutralityOther202020212022position screening/best-in-class strategies and practising thematic investing(Figure 1).Perhaps the most telling figure,h

299、owever,was the share of respondents who reported that they do not implement ESG,which has steadily fallen to 42%from 51%in 2020.This is a significant decrease and a promising indication that ESG is becoming a more mainstream factor in central banks reserves management strategies.Insufficient data or

300、 lack of information remains the biggest obstacle to further adoption/integration of ESG into central banks reserves portfolios,having increased steadily to 63%from 49%in 2020(Figure 2).This increase most likely indicates that a greater share of central banks are now considering investment in ESG as

301、sets,rather than a decline in available data.One respondent noted,We gradually increase investment in green and sustainable bonds(sovereign and corporate),but this market is still immature.Classification criteria are not transparent enough and controversial in some cases.Two further trends have emer

302、ged on barriers to ESG implementation.First,the share of respondents reporting that ESG does not fit with their fund investment strategy has fallen to 31%from 38%in 2020.At the same time,the share of respondents reporting lack of suitable projects as a main barrier to adoption and/or further impleme

303、ntation of ESG has risen steadily over the past few years,increasing to 17%from 9%in 2020 and 12%in 2021,suggesting that demand for ESG assets is outpacing supply.Respondents comments reflect this,with one stating,Green bonds issued by highly-rated sovereigns are very limited and we cannot invest in

304、to corporate bonds or equities in reserves portfolios according to our guidelines.This lack of suitable asset class supply suggests significant potential for social bonds as an ESG asset.Taken together,these figures point towards the growing acceptance and importance of ESG considerations for reserv

305、es management,as more institutions develop ESG frameworks and strategies.Despite these challenges,63%of central banks intend to increase allocation to green bonds and 42%intend to increase allocation to other sustainable bonds.In fact,net increases in central banks ESG asset allocation are anticipat

306、ed across all categories over the next two years(Figure 3).As sustainability increases in global urgency,these trends in central banks asset allocation are likely to continue over the medium to long term.Of central banks investing in sustainable assets,98%invest in green bonds with other sustainable

307、 bonds the next most popular sustainable asset class at 41%(Figure 4).Sustainable bonds,which include social bonds,were by far the biggest gainer since last year up a sizeable 33 percentage points outpacing investment in green equities,sustainable mutual funds and sustainable ETFs.The appetite for s

308、ocial bonds is confirmed by the 46THE war in Ukraine has a massive impact on all four dimensions of sustainability:economic,environmental,social and governance.It has already cost the lives of thousands of civilians and displaced millions of people from their homes.Health,education and housing syste

309、ms are facing a new test of endurance.Rising commodity prices and trade disruptions are exacerbating inflationary pressures.Higher food prices could push millions of people,especially in the poorest and most vulnerable countries,further into poverty.Given the weaponisation of gas,the war is also a w

310、ake-up call to expedite the global transition to a more secure and cleaner energy future.It makes clear that a successful development agenda requires inclusive partnerships at global,regional,national and local levels.The past has taught us that negative external shocks widen the sustainability fina

311、ncing gap,making it even more important to mobilise private capital and allocate it through the capital market to sustainable projects with positive impact.Even before the Russian invasion,the world was not on track to achieve most of the United Nations sustainable development goals.Unfortunately,ma

312、ny targets will be set back by the new geopolitical situation,so even more capital will be required in the future.The war is increasingly becoming a test for the socially responsible investment movement.It will inevitably lead to a reassessment of ESG investment approaches and sustainable portfolios

313、 as it not only reveals Europes high energy dependence on Russia and how vulnerable the global food system is,but also raises the question of geopolitical sustainability.Therefore,it is not surprising that the first sustainability rating agencies have revised their ESG risk assessment methodologies

314、and added new geopolitical criteria.The conflict has also renewed the question of how sustainable and safe invested capital is in countries with autocratic governments.In principle,an investment in government bonds and an investment in a company based or conducting business with authoritarian countr

315、ies should be considered separately.But the boundaries are often not clear.Corporates operating in authoritarian states are typically more exposed to sustainability risks than others operating only in democracies.Examples include human rights,corruption and reputational risks.Irrespective of a moral

316、 evaluation,such ESG risks have a negative impact on a companys performance.Hence,there is a question of how to treat companies that resume trading with Russia as concern becomes a source of systemic risk.The last few weeks have shown that more and more SRI investors are now excluding Russian compan

317、ies as well as issuers with significant ties to Russia.There is no question that the disruption of global energy markets has caused SRI investors to rethink energy strategies.Does the pace of fossil fuel phase-out need to be adjusted until renewables,hydrogen and storage technologies can fill the ga

318、p reliably and affordably?Will nuclear energy and natural gas gain importance as bridging technologies?Without a doubt,this new thinking should focus on renewable energy sources,energy infrastructure and sustainable technologies to support the transition away from traditional energy sources.Finally,

319、the war in Ukraine has also brought a controversial ESG discussion back onto the front pages.How should the issue of security and defence be interpreted in a sustainability context?Is defence ESG-compliant?Is Security the mother of all sustainability as the Federation of the German Security and Defe

320、nce Industries argues?How should SDG 16(peace,justice and strong institutions)be interpreted in this context?A large pension fund has already surprisingly changed its investment policy to include even certain defence companies in selected ESG funds.Although the conflict has revealed some flaws in ES

321、G investing and shifted priorities,it is too early to say if it will lead to a total rethinking of ESG in the long term.But one thing is certain:mitigating and combating the economic,environmental and social consequences of such negative external shocks requires the help of the capital markets and t

322、his must be done in a sustainable manner.SPONSORS COMMENTHOW THE NEW GEOPOLITICAL REALITY AFFECTS ESGThe war in Ukraine has enormous implications for sustainability goals,writes Marcus Pratsch,head of sustainable bonds and finance,DZ BANK AG.UNFORTUNATELY,MANY TARGETS WILL BE SET BACK BY THE NEW GEO

323、POLITICAL SITUATION,SO EVEN MORE CAPITAL WILL BE REQUIRED IN THE FUTURE.OMFIF GLOBAL PUBLIC INVESTOR 2022/SUSTAINABLE BONDSTHE GROWING IMPORTANCE OF ESG CONSIDERATIONS HAS COINCIDED WITH A PARTICULARLY CHALLENGING MACRO ENVIRONMENT AND GEOPOLITICAL LANDSCAPE.THIS MEANS THAT ESG OBJECTIVES MAY TAKE A

324、 BACKSEAT TO MORE ACUTE PRESSURES OVER THE SHORT TERM.omfif.orgOMFIF GLOBAL PUBLIC INVESTOR 2022/SUSTAINABLE BONDS48493.SIGNIFICANT ANTICIPATED INCREASE IN INVESTMENT FOR GREEN AND OTHER SUSTAINABLE BONDSReserves managers anticipated allocation to the following sustainable assets over the next 12-24

325、.Share of respondents,%4.GREEN BONDS REMAIN FAVOURITE ESG ASSET CLASSWhich sustainable assets do you invest in?Select all that apply.Share of respondents,%Source:OMFIF GPI survey 2022Source:OMFIF GPI survey 05060708090100Sustainable mutual fundsClimate-aligned bondsSustainable ETFsGre

326、en/sustainable equitiesOther sustainable bonds(e.g.transition,social,blue,SDG bonds)Green bondsSignificantly increaseModerately increaseStay the sameModerately decreaseSignificantly decrease00708090100Green bondsOther sustainable bonds(e.g.transition,social,blue,SDG bonds)Green/sustainabl

327、e equitiesSustainable mutual fundsSustainable ETFsClimate-aligned bonds20212022finding that 38%of central banks plan to invest in social bonds as part of their ESG holdings and 28%plan to invest in social bonds in the next two years(Figure 5).As in other sustainable assets,availability remains an is

328、sue 31%of respondents reported lack of supply as a key obstacle to the incorporation of social bonds into their reserves portfolio(Figure 6).Interest in social bonds will not necessarily equate to investment,at least in the short term.Social bonds have some fundamental flaws.Nearly two-thirds of cen

329、tral banks reported lack of clarity about the definition of the asset class as a barrier to further investment in social bonds,while 55%reported lack of market depth and liquidity risk as a primary obstacle(Figure 6).In combination,these are perhaps the reason why none of the reserves managers surve

330、yed by OMFIF reported investing in social bonds as a specific asset class in their portfolio(Figure 5)In spite of these obstacles,however,40%of reserves managers still stated that they plan to increase their allocation to social bonds over the next 12-24 months(Figure 7).This no doubt reflects the a

331、sset class significant potential as central bank reserves managers come to terms with ESG prerogatives as a permanent factor in their investment objectives.INCREASINGLY IMPORTANT,BUT NOT A TOP PRIORITY The challenges facing reserves managers looking to boost their sustainable investments are consist

332、ent with those facing other asset managers.Data and performance metrics need to be strengthened and standardised,as reserves managers report that reputational risk can arise due to lack of common socially responsible investment standards and a harmonised,reliable rating system.Another listed low qua

333、lity of the ESG scoring,poor correlation between different ESG scoring institutions and greenwashing as persistent concerns.The growing importance of ESG considerations has coincided with a particularly challenging macro environment and geopolitical landscape.This means that ESG objectives may take a backseat to more acute pressures over the short term.One survey respondent lamented,We have starte