The International Forum of Sovereign Wealth Funds (IFSWF) and State Street Corporation, one of the world’s leading global providers of financial services, have released new research revealing how sovereign wealth funds, and institutional investors more generally, have reacted to the financial market volatility caused by the Covid-19 pandemic.
Drawing on State Street’s extensive dataset of anonymised and aggregated institutional investor capital flows1 and interviews with IFSWF members, the research reveals that many sovereign wealth funds and institutional investors were already either overweight cash or underweight equities before March 2020 when the economic impact of the pandemic became more apparent. Consequently, sovereign wealth fund portfolios have proved more resilient to the market rout in March and April 2020 than widely supposed.
In fact, the IFSWF and State Street research suggests that institutional investors, including sovereign wealth funds, did not display widespread risk aversion in a falling market. Instead, the research suggests, they selectively took on risk – selling fixed-income securities to buy equities – to rebalance their portfolio and retain their asset-class allocations.
You can read the full research report here.
1 State Street’s indicators capture the anonymised and aggregated capital flows and positions of global institutional investors representing approximately 15% of the world’s tradable assets.