State Investors to Boost Alternative Investments, Invesco Says

Jun 22, 2014 7:00 pm ET

June 23 (Bloomberg) -- Sovereign investors will allocate more of their funds to alternative assets to meet long-term investment return targets, according to a study by Invesco Ltd.

A net 64 percent of the investors surveyed expect to increase their allocations to domestic private equity this year, the Invesco Global Sovereign Asset Management Study 2014 published today showed. Sixty percent expect to bolster allocations to global real estate and 53 percent will invest more in infrastructure worldwide, it showed.

State investors are diversifying into alternative assets such as private equity and infrastructure to add to returns from traditional assets such as bonds and equities. Norway’s Government Pension Fund Global in 2010 decided to start investing in real estate, which accounted for 1.2 percent of assets in the first quarter. Korea’s sovereign wealth fund in April said it plans to double investments in alternatives over the next decade.

“We are in a low-inflation environment generally, and what we are seeing is a search for yield,” Nick Tolchard, Invesco’s managing director of international development and sovereign investors said in a phone interview. “Because of the long-term nature of alternative investments, state investors are prepared to go into real estate, into infrastructure deals in the long- term because they can get a very attractive yield.”

Invesco interviewed 52 investors for the the study, among them sovereign wealth funds and pension funds. Of the entities surveyed, 12 had more than $100 billion of assets under management, according to the study, which didn’t name the investors.

State investors also plan to increase their allocations to emerging-market assets while maintaining a fundamental preference for developed markets, the study showed.

A net 43 percent expect to increase allocations to those in Latin America this year and 40 percent said they would add to investments in Africa. The net percentage of respondents who said they would allocate more to China, emerging Asia and India, were 38 percent, 31 percent and 30 percent respectively.