Loose Money Forces Sovereign Wealth Funds into Alternatives

Institutional investors like sovereign wealth funds, superannuation funds and public pensions are riding high on the equity market rallies of 2013. Financial media and conference companies have awarded top performance to a number of chief investment officers – CIO of the year is [fill in the blank.] When will the music stop playing and the doomsayers be correct? Will there be a major market pullback in the middle of 2014? To counter a possible drop in public equities, sovereign funds are allocating capital to real estate funds and/or buying core real estate directly. This trend is clearly evident just by witnessing Norway’s sovereign fund pick up ownership stakes in core assets in New York, Boston, Munich, Paris and London. Just in December, Norges Bank Investment Management inked a deal with Metlife to create a massive U.S. real estate platform targeting Class A office properties.

In addition, private equity raises continue to increase in frequency with larger fund commitments from public asset owners. Since 2009, fundraising has grown year over year, even when private equity funds are lying on lofty chunks of investor capital – waiting for deal opportunities. The target-rich environment from 2009 to 2011 for Western distressed assets has shrunk.

The opiate-like consequences are apparent, long-term asset owners are being forced to purchase riskier assets – enabling 2006 feelings of risk tolerance.

According to research from the Sovereign Wealth Fund Institute, more wealth funds are augmenting asset allocation toward real assets and private equity. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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