Reports circulate that the commodity-based sovereign wealth funds are liquidating holdings to help their governments plug fiscal holes. But there may be only partial truth in the headline. Another view is that there is an unexpectedly large slice of that cash being reallocated to riskier investments. Suddenly equities, venture capital, and even hedge funds are more popular among government players than they have been in years. The fresh interest in these asset classes is tied to the realization that a smaller amount of capital has to work a lot harder over time. And that should be good news for large swaths of the asset-management industry.
For sovereign wealth funds, these shifts in investment strategy run parallel to unheard of changes in operating style. The rundown in the oil price has created a major fissure in the façade. Look for widespread criticism of misaligned allocations and bloated overhead. The functional reach of these institutions is likely to contract as they respond to official cost-cutting demands. The Kuwait Investment Authority, for instance, already announced the closure of its London office. Bottom line: Some of these institutions may no longer be the flag-bearers that they once were. ■
Learn more at the Business Insider.
© 2016 Cranganore Inc. All rights reserved. Image: Paha_L at Can Stock Photo Inc.