Invesco Global Sovereign Asset Management Study 2022

Invesco Global Sovereign Asset Management Study 2022

Uncover the themes shaping the future of official institutions.

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Running since 2013, the scale and shape of this study has grown over time and this year represents the views and opinions of:

139 Chief investment officers

Heads of asset classes and senior portfolio strategists

81 Sovereign wealth funds

58 Central banks

Insights and themes

Transcript

TBC

IGSAM 2022 Dive into the study

From our interviews it became clear a number of topics were top of mind.

Explore this year’s themes

  • Inflation%20shock%20presents%20sovereigns%20with%20hard%20choices
    Theme 1

    Inflation shock presents sovereigns with hard choices

    In our first theme we discuss how the inflation shock, rising interest rates and the Ukraine- Russia war are influencing asset allocations, including a continued rise in private market allocations. However, with no consensus on how these factors will unfold we also uncover high levels of uncertainty and a widespread belief that this a macro environment in transition with limited visibility and growing uncertainty about what comes next.
  • External%20management%20and%20data%20science%20help%20overcome%20scale%20challenges
    Theme 2

    External management and data science help overcome scale challenges

    In our second theme we turn a spotlight on the challenges of scale and find external managers playing an increasing role in helping larger sovereign funds meet their private market objectives. We also note that asset manager partnerships becoming more prominent, with investors looking for assistance in areas such as beta management. In this theme we also discuss how sovereign funds are harnessing the power of data science and artificial intelligence, with these tools helping to deliver alpha at scale and improved efficiencies across large portfolios.
  • Digital%20assets:%20a%20disruptive%20technology%20gathering%20momentum
    Theme 3

    Digital assets: a disruptive technology gathering momentum

    In our third theme we focus on digital assets. While investment in cryptocurrencies remains rare, we observe sovereign funds bullish on the underlying technology, with many keen to gain exposure via companies developing digital asset infrastructure. In this theme was also examine central bank digital currencies, with most banks now exploring how this technology could work in practise and many seeing their deployment as a potential threat to established cryptocurrencies. 
  • Rising%20stakes%20in%20ESG%20as%20sovereigns%20focus%20on%20impact
    Theme 4

    Rising stakes in ESG as sovereigns focus on impact

    In our fourth theme we report on the continued rise in ESG integration. We discover sovereign investors increasingly focused on achieving measurable outcomes that can be tracked over time, which in turn is helping drive the use of impact strategies. In this theme was also discuss how Russia’s invasion of Ukraine has thrown a spotlight on some of the challenges related to passive investing, which for some investors has led to a renewed focus on active management to meet ESG objectives.
  • Renminbi%20allocations%20continue%20to%20rise,%20as%20Russia%20reserves%20freeze%20catalyses%20soul-searching%20about%20dollar%20reserves
    Theme 5

    Renminbi allocations continue to rise, as Russia reserves freeze catalyses soul-searching about dollar reserves

    In our fifth theme we focus on developments in the management of central banks reserves. This includes an exploration of the ‘weaponization’ of Russian reserves via sanctions and the potential impact on the role of the US dollar as the world’s reserve currency. In this theme we also find central banks under pressure to protect reserves from the impact of inflation. This has added momentum to trend towards non-traditional asset classes and is in turn driving the increased use of external managers.
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FAQs

A broad range of investments fall into the ‘alternatives’ asset class, including real estate, private credit, private equity, infrastructure and hedge funds.

The asset class is growing, as investors continue to turn to alternatives for diversification and to navigate challenging market conditions. 

 

At Invesco, we manage more than £145 billion in alternative assets (as of 31 December 2021). 

 

Low yields, interest rate concerns and volatile equity markets mean traditional investment strategies alone can’t be relied upon to meet portfolio objectives. With de-risking now a priority, many investors are looking to alternatives. 

 

The unique characteristics of alternative assets means that they typically generate higher returns than might be found in public market assets.

 

Accessing opportunities in private markets is increasingly critical to achieving key investment outcomes.

Global monetary stimulus in reaction to pandemic-driven supply disruptions and post-lockdown demand have brought inflation back into focus. The result has been increased volatility, particularly in bond markets.

 

Against this backdrop, an allocation to real estate or senior loans could look attractive to investors.

 

Historically, real estate is shown to offer some protection against rising inflation. Similarly, senior loans pay interest based on floating rates, which can prove beneficial in a rising rate environment, as central banks hike rates in an attempt to control inflation. 

Alternatives is a broad asset class – and it often involves private markets, which can mean less ESG data. 

 

At Invesco, our investment teams have adopted a range of innovative ESG approaches to help navigate the challenges at play. It’s about creating sustainable solutions that deliver sustainable returns.

 

Real estate

  • We regularly measure and report on building energy usage, emissions, water and waste. 
  • We set ourselves ambitious targets which align with the Paris 2-degree goal. 
  • We evaluate the risks our assets may face as a result of climate change. In particular, we focus on resilience (we call this ESG+R)This means thinking about the long-term sustainability of the portfolio from a climate impact perspective. We look at the physical risk, the transitional risk and the overall attractiveness and sustainability of the performance in the buildings themselves.
  • In 2021, the majority of the funds that we submitted for GRESB benchmarking scored five out of five green stars.

 

Private credit

We recognise that a growing number of our investors are looking for bank loan managers that will actively engage with management teams on ESG considerations. 

 

We have developed a series of private credit capabilities that integrate ESG considerations. In this respect, we truly are ahead of the curve, as ESG data in private markets is sparse. 

 

To combat this, we have built a proprietary framework that quantitatively rates each issuer based on 16 different ESG factors. We build our ratings on research carried out by our analysts, who engage with management teams, sponsors, key suppliers and customers.

We offer a range of globally diversified alternatives capabilities across our real estate, private credit and solutions capabilities.

 

Real estate

 

All too often, real estate investors concentrate exposures in their home geographies. At Invesco, we believe that there are benefits to investing in a broader geographic and sector mix, such as that offered by the Invesco Global Real Estate Strategy.

 

This unique strategy combines commercial real estate with liquid assets across a broad range countries globally. By taking this approach, the strategy has historically achieved low volatility compared to listed assets, and a low correlation with global equities and bonds.

 

Private credit

 

Our private credit capabilities offer uncorrelated returns compared to traditional listed equities and bonds. This can help drive strong (and differentiated) income, while reducing volatility. 

 

Furthermore, we offer regional capabilities (for example our US and European senior loan strategies) as well as globally diversified capabilities. For investors looking to integrate ESG considerations into their private credit allocation, we have created a market leading ESG rating framework. This puts us ahead of the curve in an area of the market where ESG data is sparse.

 

Solutions

 

Diversification in and across private markets can help portfolios weather pockets of uncertainty. It can also help them achieve reliable growth and predictable income.

 

Invesco’s Alternative Solutions Platform provides streamlined access to our specialist in-house capabilities, together with high quality investments from leading partner firms. Through this multi-manager platform, investors can benefit from economies of scale. They can also tap into expertise across a broad spectrum of private market assets.

 

Using its global expertise and proprietary technology, our Solutions team can deliver insightful and thorough analytics. Its purpose? To help with strategic and tactical asset allocation decisions while reducing the administrative burden associated with monitoring, oversight and reporting.