Are Sovereign Wealth Funds Ready for Inflation?

Animal spirits have been released with the promise of less regulation, giving institutional investors renewed confidence in both stock and bond markets.


Instead of just guessing what central banks are going to do, a number of sovereign investors are analyzing various real economies, collecting industrial data and studying growth projections. In fact, the gigantic Abu Dhabi Investment Authority (ADIA) had opened up an office in Hong Kong, allowing the wealth fund enhanced access to timely information and deal flow in the economically expanding Asian region. ADIA has been investing in Asia for over three decades, but now sees even more promise in the region.

What are institutional investors to do, as the U.S. Federal Reserve appears to be more confident, thus a potential to raise interest rates? The next question is what pace will central banks raise rates and how much? Sovereign funds, pensions and endowments have been used to accommodative monetary policy through no fault of their own. Rate-cutting and quantitative easing policies were implemented globally by central banks to avoid the pain and attempt to stimulate growth. Between 2011 to 2016, global growth was positive, but crawling and failed to trigger a rise in inflation.

Since the late 1990s, deflation became the worry and portfolio managers grew accustomed to the current relationship between bonds and stocks. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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