Sovereign wealth funds have matured as an institutional segment, as their average asset allocations fall more in line with the global asset management industry, according to a report issued by State Street Global Advisors.
The report — "How Do Sovereign Wealth Funds Invest? Less and Less Contrarian" — estimates that by the end of 2018, the 35 sovereign wealth funds represented in the report had about $6.83 trillion in assets, an annualized 5.5% increase from $6.132 trillion at the end of 2016, the last time SSGA published the biannual report.
The aggregate allocation of the 35 sovereign wealth funds at the end of 2018 was: 45.1% public equities ($3.083 trillion), 28.8% private markets ($1.964 trillion) and 26.1% cash and fixed income ($1.783 trillion).
The average allocation was 38.5% public equities (down from 39.6% two years earlier), 33.2% cash and fixed income (down from 33.8%) and 28.3% private markets (up from 26.6%).
According to the report, when excluding two unidentified sovereign wealth funds that completed a major strategy review, the change in average asset allocation is negligible.
The report also noted that fiscal uncertainty earlier in the decade caused oil funds to exhibit different behavior than those originating from non-oil resources, such as increasing allocations to fixed income in 2012 and 2014, but following the 2014 "oil price shock," oil-based sovereign wealth funds' investment behavior has converged with non-oil funds.
Sovereign wealth funds in general have also aligned more with other institutional asset owners. While derisking was prominent in 2012 and 2014, both years in which other asset owners invested more heavily in equities, the asset allocation changes by sovereign wealth funds have been closer to those of other asset owners.