State Street Corporation and the International Forum of Sovereign Wealth Funds (IFSWF), a global network of sovereign wealth funds from 40 countries, have today released a new report revealing how institutional investors and sovereign wealth funds implemented their capital flow and portfolio reallocation decisions over the past year and what emerging themes are driving portfolio decisions looking ahead in 2023 and beyond.
In summary, the paper reveals:
- Solid signs are emerging in 2023 that global inflation may have peaked and is beginning to decline.
- However, concerns about prolonged high inflation and its implication are weighing on the minds of investors, particularly the sovereign wealth fund community.
- Thus, some sovereign wealth funds have signalled their intent to increase downside protection and active hedging programmes while sticking firmly to their strategies by maintaining their benchmarks.
- Meanwhile, institutional investors have shown evidence of rotating out of interest rate-sensitive fixed-income markets to emerging market equities, increasing their cash reserves, and raising their foreign exchange exposure to higher-yielding North American currencies of the US and Canadian dollars.
- In private markets, fundraising has slowed – a trend seen in custodial data and observed by the sovereign wealth fund community.
- Taken together, signs of caution are evident.