Sovereign Wealth Funds Lost Thirst for Direct Real Estate During COVID
Posted on 05/11/2021
2020 was a unique year for global sovereign wealth fund investors. During 2019, in the aggregate, equity-focused sovereign funds realigned portfolios to be more defensive in public stocks, while splurging more in real assets. The coronavirus emerging out of China and spreading to the U.S. and Europe changed the game. Cash-rich sovereign funds became opportunistic, including a cadre of Gulf sovereign investors. Clear signals by heads of states, then measures by the Federal Reserve, European Central Bank, and other monetary institutions – money printing and swap lines became a reality. Sovereign funds and pensions started to “buy the dip” after the March 2020 COVID crash.
Direct Sovereign Wealth Fund Investments by Sectors in Billions USD
In 2020, sovereign wealth funds directly invested US$ 179 billion, far more than previous years. Some sovereign investors entered the pandemic with high levels of cash, after selling off positions throughout 2019. Luckily for a number of countries, these SWFs were able to support local economies. In addition, a major contributor of the 2020 equity flow is sovereign wealth funds directly buying stocks after the March 2020 COVID crash (buying the dip).
SWFs were not attracted to all sectors. They rotated out of real estate for listed equities. In 2020, sovereign wealth funds directly invested US$ 14 billion in the real estate sector vs. US$ 22 billion in 2019 and a high of US$ 42 billion in 2017. Within real estate the focus turned to data centers and logistics vs. offices and hotels.
Infrastructure asset class was steady at US$ 5 billion, but a drop from US$ 11 billion in 2019.