SWFs dare to take more risks

The investment vehicles for state assets have used the corona crash to buy stocks cheaply. Investments in companies are also gaining in importance.

Sovereign wealth funds are particularly comfortable on Wall Street in New York.

Dhe sovereign wealth funds have become much more willing to take risks in the coronavirus crisis. That is the result of a study published on Monday that the American securities depository State Street produced together with the International Forum for Sovereign Wealth Funds (IFSWF). According to this, the state investment vehicles, which together manage assets of more than 38 trillion dollars, mainly increased their equity allocation. They have thus used the low prices after the Corona crash in March 2020 for a low-cost entry.

“Long-term investors have made risk-taking decisions in all asset classes by reducing their cash holdings and increasing their equity exposure. At the same time, they have further diversified their portfolios by investing more in private forms of investment, ”explains Neill Clark, European head of State Street Associates, the securities custodian’s research unit.

At the beginning of 2020, investment vehicles for state assets were still very cautious. Cash levels had reached their highest level since the financial crisis of 2008 and 2009. According to the study, the Public Investment Fund of Saudi Arabia in particular has pushed the trend towards more risk. This became involved in the energy and financial services sectors in the second quarter of 2020.

According to IFSWF data, SWFs made 30 direct investments totaling $ 7.4 billion in technology and communications companies in public markets last year. That is significantly more than in the two previous years: in 2019 there were 22 transactions with a volume of 2 billion dollars and in 2018 twelve investments for a total of 1 billion dollars.

Higher engagement in America

In addition, the sovereign wealth funds increased their holdings in American stocks by 16 billion dollars after 2 billion dollars in 2019. Here, too, the Saudi Arabian sovereign wealth fund PIF made a decisive contribution through its anti-cyclical behavior in spring 2020. In contrast, exposure to the emerging markets, which are considered to be high-growth, was scaled back. In continental Europe there was a slight upward trend, while equity investments in Great Britain declined due to Brexit and the Corona damage.

However, the sovereign wealth funds there have more than quadrupled their investments to 4.4 billion dollars compared to 2019, because a large part went into direct corporate investments (private equity). Overall, investments by sovereign wealth funds in companies that are not listed on the stock exchange doubled to more than 50 billion dollars in the past year.