Risk is back on the menu for sovereign and public funds, survey shows
2024.12.05 09:34
By Libby George
LONDON (Reuters) – Sovereign and public funds managing $6.5 trillion are putting risk back on the menu as inflation fears fall from the list of top concerns, and are betting big on India, a survey from the Official Monetary and Financial Institutions Forum showed.
The end of a years-long global inflation surge is allowing funds to refocus on long-term returns – with a “fundamental shift” toward private markets and opportunities spotted in India and sustainable assets, according to OMFIF’s annual survey of 28 global public pension and sovereign funds.
“A more risk-on approach implies a shift from fixed income into public equities,” the report from the London-based think tank said. “But there is a more fundamental shift – away from liquid, public markets and instead into illiquid, private markets.”
It said the shift indicated a willingness to forgo liquidity for improved returns, particularly as global interest rates appeared poised to fall or, at a minimum, remain stable.
Now that inflation has subsided, 25% of those surveyed expected to reduce cash holdings, and more than 40% expect to increase their allocations to public equities.
Not a single respondent listed China as the leading emerging market for investment this year – a stark shift from last year, when 23% put it at the top – with geopolitical risks, particularly tariffs and trade wars, remaining at the fore and Beijing battling its own economic woes.
India instead took the top spot, with 58% of funds in the survey deeming it the most attractive market, up from 38% a year ago.
“India’s strong macroeconomic fundamentals and regulatory environment are supporting its investment appeal, and large funds including the Korea Investment Corporation and Abu Dhabi Investment Authority have built a local presence there this year,” OMFIF said.
Some 63% of respondents wanted to invest more in sustainable venture capital, private equity or private debt, while the AI boom has sparked sovereign funds’ interest in digital infrastructure such as data centres.
