Sovereign wealth funds are steadily increasing their exposure to equities in search of higher returns, according to a report by Cerulli Associates.
The research firm’s latest report—“Institutional Asset Management in Asia 2014: Stepping Up Their Game”—shows a sustained appetite for equity investments. This is despite a strong rally in 2013 that pushed some indices to record highs, with many commentators arguing developed market equities are fully valued.
Cerulli cited Singapore’s two national investment funds, Temasek and GIC, as having pumped more cash into stocks. Temasek has 70% of its $173 billion portfolio in equities, while GIC has upped its exposure from 38% to 48% in five years.
The Korea Investment Corporation has been steadily increasing its equity holdings, Cerulli said, from 41.8% in 2010 to 48.5% in 2013.
Japan’s ¥127 trillion ($1.1 trillion) Government Pension Investment Fund last week confirmed plans to double its equity weighting from 24% split equally between domestic and international stocks to a 50% weighting, selling a significant part of its domestic fixed income holdings in the process.
Cerulli’s report argued that Asian sovereign funds will remain dominated by equities for the foreseeable future.
“An increasing asset base, challenging investment environment, and the pressure of seeking alpha mean managers that are top performers, both large and for niche strategies, have opportunities for additional top-ups and new allocations,” said Yoon Ng, Asia research director at Cerulli.
Europe’s biggest sovereign investor, the $858 billion Norway Government Pension Fund Global, has marginally reduced its exposure to equities in the 12 months to the end of September, from 63.6% to 61.4%. However, since Q3 2010 the exposure has remained fairly steady at just under two-thirds of the portfolio.
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