According to a study by asset manager Invesco released on Monday, India will become the second most sought-after investment market after the United States for sovereign wealth funds and public pension funds in 2022. Sovereign investors, who now manage about $33 trillion in assets, have also seen a rapid increase in allocations to private markets, although that trend could begin to slow with fixed income back in favor, the Invesco Global Sovereign Asset Management Study said.
“Over the past 10 years, sovereign investors have invested with the wind at their backs thanks to the secular bull market that emerged from the global financial crisis,” said Rod Ringrow, head of formal institutions at Invesco. Average annual returns for sovereign investors over the past decade were 6.5% and for sovereign wealth funds alone 10% in 2021, Invesco found. However, 2022 could prove to be a watershed year with higher inflation and tighter monetary policy hitting long-term expected returns.
While the United States remained a top destination, some sovereign investors were interested in rebalancing portfolios because they feared they had become too reliant on US markets, leaving them vulnerable to the correction in equity markets seen this year, Invesco said. In 2014, the United Kingdom was the most requested destination.
The study predicted that emerging markets would benefit from the latest shift. Among developing countries, India overtook China as the most popular emerging market, climbing to No. 2 in 2022 from No. 9 in 2014. “While this is partly because funds with dedicated Asian allocations are reducing their exposure to China, investors have appreciated India’s positive economic reforms and strong demographic profile,” the study said. China is currently ranked sixth. The past decade has also seen a steady increase in the creation of sovereign wealth funds, with a dozen established in Africa, 11 of which have a strategic mandate to develop local economies, Invesco found.
