Every Middle Eastern sovereign wealth fund plans to increase its exposure to real estate in the year ahead and most also plan to increase their allocations to private equity, says a
long-standing survey of investors based in the region.
The findings – from the Invesco Asset Management Study and based on interviews with 112 investors – underline the trend towards alternative asset classes.
Middle East sovereign funds use a “barbell” investment model, says Nick Tolchard, head of Invesco Middle East, who was in Dubai to present the findings.
“They’ll take a passive index approach at the centre and build a high alpha strategy at the periphery with more expensive asset classes like real estate, private equity and infrastructure – and they’re doing that themselves.”
Because sovereign wealth funds are increasingly developing alternative asset class capabilities in-house, Tolchard says asset managers must work hard to identify needs that can be met by external providers.
Invesco compared the results of the Middle East study with research on global sovereign funds and found a marked difference in the behaviour of sovereign wealth funds in different parts of the world. Whereas Asian sovereign funds tended to be focused almost exclusively on returns, most of the Middle East funds had explicit or implicit development goals, such as supporting the domestic private sector or building skills in the job market.
The study also found that Middle East sovereign funds were able to pay their staff more than funds in other parts of the world. Thirty-eight per cent of Middle East funds said they were able to match private sector salaries compared to just 15% of global sovereigns.
The Invesco report estimates that Middle East sovereign funds have a combined $1.4 trillion (€1 trillion) under management, accounting for 85% of the assets in its Middle East report when retail and high-net-worth investors – who are also included in the research – are added.
The Middle East study, the fifth annual survey of its kind, was based on hour-long interviews conducted by research firm NMG Consulting and included 52 interviews with employees at sovereign wealth funds.
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