Sovereign wealth funds (SWFs) appear to be pulling away from private markets, after the number of unlisted real estate and infrastructure deals fell last year, according to a new report.
Using a three-year database of investments by more than 60 SWFs, the International Forum of Sovereign Wealth Funds (IFSWF) and Bocconi University found that the number of private deals dropped from 196 in 2016 to 184 in 2017, while the number of listed investments rose from 94 to 119.
IFSWF, which was created in 2009 to promote transparency among SWFs, said the slowdown in private-market activity was partly explained by competition in real estate and infrastructure markets.
“This is particularly the case in the private property sector, which saw a 40% decrease in the total invested by SWFs between 2016 and 2017,” the organisation said.
“Greater regulatory challenges, and increased opportunities in listed markets, were also identified as driving flows away from private markets.”
The report said: “A lower volume of real estate deals in 2017 looks to be the main reason for the slowdown in allocation to private markets, as this sector has been favoured by sovereign wealth funds for some years.”
In 2017, the number of direct real estate and infrastructure investments made by SWFs was down from $25bn in 2016 to $23.2bn.
In the property sector, there was an almost 40% decrease in the number of SWF investments in private markets between 2016 and 2017.
“SWFs are finding it more difficult to buy properties; more institutional investors have recently entered the sector, increasing competition for high-quality assets and pushing asset valuations higher,” the report said.
The report also highlighted that SWFs are also increasingly collaborating with other investors, including their peers and private equity firms on investments, enabling them to harness external expertise across sectors.
Bernardo Bortolotti, a director of the Sovereign Investment Lab at Bocconi University, said: “The global investment backdrop means the findings outlined in this report are likely to develop further over the short-to-medium term.
“In particular, we expect to see continued partnerships with third-party investors as a more controlled way for funds to get exposure to earlier-stage equities.
“But over the longer term, SWFs will have to deal with the disruption of an increasingly uncertain macroeconomic environment. Research efforts have to be enhanced to improve understanding and decision making.”
Duncan Bonfield, CEO of IFSWF, said: “This review is a new effort to improve public understanding of sovereign wealth funds.
“As these funds increasingly look to invest directly through their own investment teams, our data is intended to shine a light on their asset allocation trends, and to clarify many of the misconceptions about what these funds are and how they invest.”
