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Sovereign Wealth Funds pull back from private markets in return to listed equities

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Sovereign wealth funds are increasing their exposure to listed assets as private market deal activity slows, according to research from the International Forum of Sovereign Wealth Funds (IFSWF).

‘Dealing with Disruption’, the inaugural IFSWF annual review, produced in association with the Sovereign Investment Lab at Bocconi University, found that sovereign wealth funds’ (SWFs) appetite for real estate and infrastructure deals slowed in 2017. The number of investments in unlisted assets completed in 2017 fell to 184, from 196 in 2016, while the number of listed investments rose to 119 in 2017, versus 94 in the previous year.
 
IFSWF data suggests that the slowdown in capital allocation to private markets was partly explained by increased competition across real estate and infrastructure markets. This is particularly the case in the private property sector, which saw a 40 per cent decrease in the total invested by SWFs between 2016 and 2017. Greater regulatory challenges, and increased opportunities in listed markets were also identified as driving flows away from private markets.
 
The IFSWF annual review uses data from a newly launched IFSWF database on global direct equity investments by sovereign wealth funds going back to January 2015. The report also found that SWFs are increasingly collaborating with other investors, including their peers and private equity firms on investments, enabling them to harness external expertise across sectors.
 
In addition, SWFs are buying fewer listed consumer goods and services companies, choosing to invest at earlier stages alongside private equity firms; they are increasingly looking to invest in the next big technological breakthrough. There has also been a large uptick in investment in India from SWFs, particularly through IPOs, with the trend set to continue into 2018.
 
Bernardo Bortolotti (pictured), Director of the Sovereign Investment Lab, says: “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, SWF 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, says: “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.” 

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