The report looks at how institutional investors and sovereign wealth funds implemented their capital flow and portfolio reallocation decisions over the past year and what emerging themes are shaping portfolio decisions in 2023 and beyond. 

SWFs, while state entities, have a lot in common with large family offices because of their often long-term time horizons, although they differ by being influenced – not always without controversy – by political pressures. Large SWFs include the Norwegian government's pension fund; China Investment Corporation; SAFE Investment Company (Asia); Abu Dhabi Investment Authority (Middle East); Kuwait Investment Authority (Middle East); GIC Private (Asia); Public Investment Fund (Middle East); Hong Kong Monetary Authority Investment Portfolio (Asia); Temasek Holdings (Asia), and Qatar Investment Authority (Middle East). (Source: SWFI.)

According to the report, after a year of record inflationary levels seen across many regions, solid signs are emerging in 2023 that global inflation may have peaked and is beginning to decline. However, concerns about prolonged high inflation, its effects on economic growth, and the potential for monetary policy missteps from central banks – particularly in developed economies – continue to weigh on the minds of investors, particularly the sovereign wealth fund community.

Some sovereign wealth funds have signalled their intent to increase downside protection and active hedging programmes while sticking firmly to their strategies by maintaining their benchmarks. Meanwhile, institutional investors have shown evidence of rotating out of interest rate sensitive fixed income markets to emerging market equities, increasing their cash reserves, and raising their foreign exchange exposure to the higher-yielding North American currencies of the US and Canadian dollars, the report states.

In private markets, fundraising has slowed – a trend seen in custodial data and observed by the sovereign wealth fund community. Taken together, signs of caution are evident, the report concludes.

US-based State Street provides financial services to institutional investors including investment management, research and trading. It has $35.7 trillion in assets under custody and/or administration and $3.3 trillion in assets under management. 

The International Forum of Sovereign Wealth Funds is a voluntary organisation of global sovereign wealth funds, seeking to promote a deeper understanding of sovereign wealth fund activity amongst government and financial services institutions.