ASSET MANAGEMENT MOVES INTO THE SPOTLIGHT

FOCUS ON INFRASTRUCTURE IN SWFs

thE risE of swfs

According to Preqin, the proportion of SWFs investing in infra- structure remained relatively constant during 2012-13. Over half of the SWFs they tracked were actively investing in the infrastructureasset class. SeeFigure13. Of those, 84% invested in infrastructure assets directly, demonstrating the high level of experience and the resources available to SWFs. See Figure 14. Within this 84%, one-third only invested directly, whereas half gained exposure through a mix of direct investments and commitments to infrastructure funds. Just 16% of SWFs invested in infrastructure solely via commitments to funds.

SWFs are another segment of investors gaining the attention of asset managers. There has been a significant growth in SWFs in recent years with approximately 53 new funds being formed since 2000, bringing the global total to 62, according to the Sovereign Wealth Fund Institute. Primarily, they invest either to achieve attractive returns on investment or to generate strategic advantages for their country or both. However, SWFs can differ significantly from one to another. Invesco 22 categorises SWFs as follows: Investment sovereigns, those who are purely interested in attractive investment returns; Liability sovereigns, which have some form of defined or undefined income requirement (liabilities); Liquidity sovereigns, which have liquidity (or stabilisation) objectives alongside investment objectives; and Development sovereigns, which have local development objectives for their country. These individual types of SWFs differ according to investment preferences and horizons, risk appetite, asset allocation and expected return on investment. Although SWFs also saw their assets diminish during the peak of the crisis, the AuM have recovered and surpassed pre-crisis levels, growing to over $5 trillion by 2012 due to the inflow of newmoney as well as return on investments. SWFs constitute a major opportunity for the asset management industry because they are long-term and stable investors with almost no liabilities for some of them. According to Pension and Investment Magazine, 45% of SWFs assets are managed by external managers. See Figure 12.

Figure 12 INterNAL ANd exterNAL mANAgemeNt of swfs

45%

55%

In-house managers External managers

45%

55%

In-house managers External managers

Source: Pension and Investment Magazine

Sources:Pensionand InvestmentMagazine

Alternative assets such as private equity, infrastructure, real estate and hedge funds make up a significant part of the portfolios of these investors. According to Preqin, the portion of SWFs investing in private equity in 2013 was 51%, infrastructure was 57%, and real estate and hedge funds amounted to 54% and 31% respectively. See Figure 13.

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22 Invesco, "Sovereign Asset Management Study", 2013