JEDDAH: Sovereign wealth funds (SWFs) across the GCC account for 44 percent of global SWF flows, representing just over $1 trillion, Invesco Asset Management Limited said Monday in its second annual Invesco Middle East Asset Management Study. The study revealed that contrary to the widely held view that the majority of SWF assets in the GCC region put money into what is termed "policy supporting" investments; either trophy assets to build the profile of a region or investments to support foreign policy, "this accounts for approximately just 5 percent of SWF assets illustrating a recent shift to more locally focused investments and balanced equity investment." The study which offers insight into the complex investment behavior of SWFs in the Gulf Cooperation Council (GCC) region and provides a new framework to help interpret investment preferences across these ever-evolving markets. Nick Tolchard, head of Invesco Middle East, said: "Interestingly 88 percent of sovereign wealth fund assets are invested for diversification purposes, putting assets in what we would term relatively straight forward balanced, long term funds. In the main, the objective is to diversify country assets away from oil dependence, preserving wealth for future generations. The 'public' perception of sovereign wealth funds is that they invest heavily in international trophy assets, this shows that it simply isn't the case with only approximately 5 percent of SWF assets now going that way." Traditional investment SWFs move toward developed market investments. Interestingly, traditional investment SWFs – diversification vehicles and asset managers – appear to be showing a greater shift in their asset allocation toward developed markets. In our 2010 study 64 percent of traditional investment, SWFs showed a preference for emerging markets, in contrast to just 25 percent of SWFs and sovereign agencies in 2011. For an average SWF portfolio, Invesco estimates that 54 percent of GCC SWF assets are now held in developed market investments with the highest exposures to North America (29 percent) and to Western Europe (19 percent). "Last year's study identified a consistently high demand for emerging markets across SWFs and all other companies and territories. We are now identifying a growing trend towards more developed markets, as investors seek new and possibly more fruitful investment opportunities in undervalued developed markets. However, an important nuance is that it is a case of there being more money on the table to invest in developed markets, rather than investors moving out of emerging markets. Investors are in fact becoming more discerning over their emerging market investments and taking a more sophisticated approach. We are seeing many looking for specific emerging market opportunities such as Turkey and India, rather than broad-based investment in BRIC or global emerging market," Tolchard noted.
