Sovereign investors are reshaping their portfolio strategies in response to geopolitical tension, inflation and financial market volatility, according to the latest a study by asset manager Invesco.
The report, based on the views of senior investment professionals at 83 sovereign wealth funds (SWFs) and 58 central banks, has shown a move toward greater use of active management, fixed income strategies and selective diversification.
Geopolitical competition, inflation and policy uncertainty emerged as short-term risks, with 88% of respondents citing geopolitical risk being the top concern. Concern over market volatility has more than doubled in a year, rising from 28% in 2024 to 59% in 2025. While passive strategies still play a role, especially in liquid public markets, the study found that more than 70% of SWF portfolios now include active strategies across equities and fixed income. 52% of investment professionals plan to increase active equity exposure in the next two years, with 47% doing the same for fixed income. The trend is strongest among larger funds, with 75% of those managing over $100 billion shifting more actively into equities.
With interest rates normalising and yields rebounding, fixed income is increasingly used not only for returns but also for liquidity management. On a net basis, 24% of SWFs plan to increase allocations to fixed income over the next year. As private market allocations grow and portfolio liquidity tightens, sovereign investors are using formal liquidity frameworks—60% now do so—and designating parts of their fixed income holdings specifically to offset private market illiquidity.
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Direct access to private credit among SWFs has risen from 30% to 44% year-on-year, with fund-based access increasing from 56% to 63%. Half of all SWFs plan to increase allocations in 2025, particularly in North America. With bond-equity correlations weakening, private credit offers floating-rate income and customisable exposure that is less tied to public market swings.Interest in China-focused investments rose from 20% in 2024 to 28% in 2025, especially in sectors such as AI, semiconductors and renewables. However, 48% believe China will successfully transition to a consumption-led model, underlining the need for active management. About 9% of SWFs use passive emerging market strategies, with 85% preferring local expertise through specialist managers.
Direct investment in digital assets by SWFs has climbed from 7% to 11%, with interest highest in the Middle East, Asia Pacific and North America. Stablecoins are attracting new attention due to their relative price stability and potential for real-world use cases, such as cross-border payments. While indirect exposure via VC funds remains the norm, the move toward direct holdings signals a shift from curiosity to early adoption.
64% central banks plan to grow reserves in the next two years, with diversification and gold allocations playing a central role. 47% of central banks said they plan to increase gold holdings as “a strategic hedge against risks such as rising U.S. debt levels, reserve weaponisation, and global fragmentation”.
Central banks are also updating their gold strategies by adding tools like ETFs, swaps, and derivatives to boost flexibility and liquidity. This trend is set to grow, with 21% planning to invest in gold ETFs (up from 16%) and gold derivative use expected to double to 19% over the next five years.
