ME Sovereign Funds Increasingly Investing In Property

Sovereign investment funds across the Middle East and emerging markets are increasingly allocating investments to alternative options such as property, according to a study.

Invesco Global Sovereign Asset Management Study offers an insight into the behaviour of sovereign investors across the world.

According to the report, funds across Asia and the Middle East have much lower allocations to alternative options as compared to western investment sovereigns.

However, patterns are changing. The study found that around 69 per cent of sovereign funds in the Middle East cited an increase in allocation while 54 per cent and 60 per cent of the funds in Asia and emerging markets said they allocated funds to alternative assets.

The majority of the sovereign investors in Asia (80 per cent) and the Middle East (100 per cent) cite the biggest net increases over the last 12 months were in international real estate and private equity. In a reverse trend the report also said that many of the western funds have increased allocations to domestic real estate markets.

“While Asia and Middle East sovereigns have relatively modest allocations to alternatives compared to Western sovereigns, we believe a shift is starting as they look to adopt the investment models of the West,” said Nick Tolchard, co-chair of Invesco’s Global Sovereign Group & head of Invesco Middle East.

“When you consider that the vast majority of sovereign investor assets are managed by sovereigns in Asia and the Middle East, the growth in sovereign alternative investments could be substantial.”

The report also traces a rising trend of public-private partnership investment approach among the funds, which encourages investments that support GDP growth, job creation and skills transfer.

Currently global sovereign flows represent just over $6 trillion, said the report.

“There is a ‘public’ perception that these vast global sovereign wealth funds invest heavily in international strategic or trophy assets, and are seeking big stakes in other countries, however this is not always the case,” said Tolchard.

“For many their first objective is focusing on the home market and developing the local economy. If sovereigns think they will get a better return locally, they will invest locally. In the main, international investments are made to provide diversification.”