Tuesday, Jun 06, 2017
Dubai: Middle East sovereign funds have been focusing on income-generating real estate after having missed targeted returns last year, a study revealed.
Invesco interviewed 97 fund managers, who manage about $12 trillion (Dh44 trillion) of assets for their fifth sovereign asset management survey to generate insights on various asset classes.
There has been a general growth in allocations towards real estate, which currently stand at about 11 per cent in the Middle East, compared to 5 per cent elsewhere.
“The change this year is that they [sovereign funds] are looking at real estate from an income-generating perspective. Cash flows coming off real estate as the primary driver, A lot of that has been funded by reduction in their fixed-income portfolio,” Alex Millar, head of EMEA Sovereigns, Middle East and Africa institutional sales at Invesco, told Gulf News.
Over two-thirds of sovereigns reported being over weight to global real estate in 2016, and 44 per cent expect to be over weight this year, the study said.
Figures were similarly positive for home market real estate, with 58 per cent being over weight to this segment relative to their portfolio in 2016, and 38 per cent expecting to be over weight this year. Sovereigns on average increased their home market real estate allocations at a greater rate (increasing by 1.2 per cent of assets under management or AUM) than they did their global real estate allocations (increasing by 0.3 per cent of AUM) year on year.
Favour
US stocks still found favour among sovereign funds because of their safe haven properties but UK stocks were less attractive.
“Safe haven markets like the United States found favour among funds. The UK has drop in its attractiveness clearly post Brexit. Asset allocations haven’t really changed but the impact has been felt because of the depreciating pound,” Millar said.
Geopolitical uncertainty and limited options to increase risk asset allocations are causing sovereign investors in the Middle East and across the globe to make fewer allocation changes than at any point in the last five years, despite target return gaps increasingly widening.
Challenging year
2016 was a challenging year for sovereign investors with concerns surrounding funding levels and return expectations remaining front of mind amid added macroeconomic and political uncertainty, according to Invesco.
“Demand for alternatives like infrastructure has been a consistent theme in past years, but this year the challenge of increasingly scarce supply is compounded. Whilst investors have fewer asset allocation levers with which to respond, they are delving deeper into more supply-rich real estate markets, and looking to the US and Germany for opportunity and economic strength. With limited domestic opportunities, Middle East sovereigns interestingly gave the greatest asset allocation among sovereigns to international real estate,” Miller said.
By Siddesh Suresh Mayenkar Senior Reporter
Gulf News 2017. All rights reserved.
