The worldwide economic slowdown and soaring inflation are the biggest concerns for global public pension funds and sovereign wealth funds over the next 12 to 24 months, according to a survey by the Official Monetary and Financial Institutions Forum.
Respondents to the survey, conducted from August to October of 13 public pension funds and six sovereign wealth funds with a combined $3.2 trillion in assets under management located worldwide, said they are allocating to alternative assets that provide a hedge against inflation. More than 40% of the funds are looking to invest more in real estate and infrastructure assets, and many said they will allocate more to inflation-linked bonds and commodities.
Market volatility is causing more funds to seek security in the U.S. dollar, with the euro, yen and Swiss franc also being attractive options. However, for "the first time in recent memory," an OMFIF survey of global public investors shows a reallocation away from China's renminbi.
No institution surveyed plans to increase their exposure to the renminbi, and 12% plan to decrease investments over the next year or two — a reversal from last year, when 11% of respondents planned to increase their exposure.
Pension and sovereign wealth funds are primarily worried about geopolitical tensions between China and other countries, the survey showed. But more than 50% of respondents also cited less market transparency, China's regulatory environment and capital controls as negative factors.
Even if institutions allocate away from the renminbi, most will still have significant investments in China; 97% are invested in the country, and 83% hold Chinese equities. More than 70% of respondents said diversification was the main reason for buying Chinese assets.
"For the first time, public investors now appear more defensive than upbeat on China," the OMFIF report said.