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Sovereign wealth funds have an investment return gap

Invesco recently conducted an asset management study of sovereign wealth funds, and found a massive gap between target returns (6.1%) and actual returns for last year (4.1%), as a percentage of assets under management. The sample excluded central banks, and the averages were not weighted by AUM.

  • What it means: Expect SWFs to keep pushing deeper and deeper into alternatives, in an effort to shrink that gap – particularly as economic volatility causes some governments to tap sovereign reserves.
  • Catch-22: Massive inflows into alternatives also can depress long-term returns, thus making it harder for SWFs to meet their targets.
  • Context: "Norway's sovereign wealth fund has grown so large that it is two-and-a-half times the size of the Norwegian economy. Its size is equivalent to $185,000 for each man, woman, and child in Norway." -- ValueWalk