Middle Eastern sovereign wealth funds (SWFs) are prioritising investments in the infrastructure sector, particularly renewable energy and transmission segments, according to the annual Invesco Global Sovereign Asset Management Study.

Almost 71% of the survey takers from the Middle East were drawn toward renewable energy generation and energy transmission/supply.

“Geopolitical fluctuations and the urgent issue of climate change have underscored the necessity for secure and sustainable energy supply chains, thus amplifying the importance of renewables in investment strategies,” said Josette Rizk, Head of Middle East and Africa at Invesco.

Between 2017 and 2023, SWFs’ adoption of environmental, social, and governance (ESG) policies rose substantially, from 46% to 79%. In the Middle East, 90% of SWFs and 22% of central banks have embraced ESG policies.

However, real estate ranked lowest in the preference of Middle Eastern SWFs.

Real estate is currently perceived to be the least attractive private asset segment, mainly due to challenges in the office and retail sectors.

Thus, several sovereign wealth funds heavily exposed to these sectors have sought diversification in areas such as industrials, healthcare and data centres, which have risen in popularity due to the growth of digital technologies and remote work.

Globally, sovereign investors remain interested in private assets, with infrastructure rated as the most attractive asset class over the next five years, ahead of fixed income, private equity, and listed equity.

Almost 81% of sovereigns see renewable energy generation as an attractive area, followed by energy transmission and supply at 65% due to the war in Europe and the subsequent energy crisis, triggering a global surge in renewable infrastructure demand.

The findings of Invesco’s 11th sovereign asset management study in 2023 were based on interviews with 142 funds: 85 sovereign investors and 57 central banks. The study was conducted between January and March 2023.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)