Sovereign wealth funds such as the Norwegian oil fund or the investment vehicles from Singapore and the Arab Gulf states have been causing a stir in the financial markets for years with their investments.
But in times of crisis they also serve their governments for funding.
According to a study by the American investment company Invesco, this was shown by the corona pandemic last year.
In order to finance expenditures or to cover budget deficits, more than a third of state investors were faced with calls for funds.
Editor in business.
Follow I follow
Many of the sovereign wealth funds drew on their experiences from the great financial crisis that escalated after the collapse of the US investment bank Lehman Brothers in September 2008. This applies above all to the importance of high liquidity reserves. With them, the state investment companies were able to stabilize the domestic economy and large companies that were dependent on state support. However, according to the Invesco survey of 141 decision-makers from 82 sovereign wealth funds and 59 central banks, this did not apply to all: the extent and speed of the withdrawal of funds forced some to rethink their investment strategies and liquidity risk management. This has led to a shift towards cash.In the course of 2020, the portfolio's liquidity reserves would have more than doubled. Invesco attributes this to the fact that some state investors wanted to arm themselves for further withdrawals.
Rod Ringrow, who is responsible for this customer group at Invesco, sees sufficient liquidity reserves as an advantage in order to be able to take advantage of new market opportunities at short notice.
At the same time, he says, the challenge of generating adequate returns in an extremely low interest rate environment has a fundamental impact on the strategic distribution of wealth and the perception of market risk.
Fear of extremely low interest rates
In the past year, the proportion of interest-bearing investments such as bonds in the portfolios of the government investors surveyed, who manage a total of 19 trillion dollars, fell from 34 to 30 percent. In contrast, the share of cash was more than doubled to 9 percent. Equity investments rose from 26 percent in 2019 to 28 percent. In the next twelve months, 30 percent of government investors are considering increasing their share allocation.
The sovereign wealth funds are not deterred by the geopolitical tensions between China and the United States.
Because they returned to the People's Republic with the decreasing risk of corona.
This makes the Chinese market more attractive for many of these investment vehicles than it was before the pandemic.
The higher exposure there came at the expense of Europe, the Middle East and other emerging markets such as Latin America and Africa.
The pandemic has brought the topic of sustainability even more into focus.
Within four years, the proportion of respondents who have a guideline on this has risen from 46 to 64 percent among sovereign wealth funds and from 11 to 38 percent among central banks.Keywords: