Sovereign Wealth Fund Trends 2012 - M&A

May 12, 2013 by Loch Adamson

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Financial services, real estate, commodities and infrastructure accounted for almost 80 percent of SWFs’ total publicly reported direct investment in 2012. The emphasis on these sectors shows that sovereign funds are undertaking more diversified, long-term strategies. Uncertainty in public markets is driving this trend. SWFs have traditionally used fixed-income securities to preserve their asset values, reduce portfolio volatility and provide liquidity. But the sovereign debt crisis in Europe has reduced the pool of investment-grade sovereign issuers and driven down yields of those assets. As a result, bonds no longer fulfill their established role in SWF portfolios. But rather than following investors in the so-called great rotation from bonds into equities, several SWFs have chosen to invest in sectors like commodities and infrastructure. These provide greater diversification and take advantage of the funds’ long-term investment horizons by capturing illiquidity premiums, harnessing secular macroeconomic…

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