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Investment Trends Among Sovereign Wealth Funds Asset Allocation Stable, Returns Less Volatile

Returns for SWFs have been volatile since 2020. Year 2021 was a year of exceptional growth. By contrast, 2022–2023 was a period of bust and recovery, with markets feeling the effects of the inflationary shock and the sharp policy rate increases that followed.

February 27, 2024

Vladimir Gorshkov, CFA

Macro Policy Strategist

Elliot Hentov, Ph.D.

Head of Macro Policy Research

This is our biennial update on the asset allocation trends of sovereign wealth funds (SWF). The key theme over the last three years has been a structural shift in the macro environment – an end to the era of ultra-loose monetary policy coupled with rising inflation and increasing geopolitical risks, among others. Against this backdrop, markets have been exceptionally volatile, and SWFs have not been immune.

Year 2022 was the first since 2008 when SWFs on average reported a negative return, beating conventional benchmarks. We find that the outperformance of SWFs remains true over the long term as well, but only when adjusted for risk. Meanwhile, asset allocation has largely remained steady, reflecting slower growth of private market portfolios, due to private markets facing absorption constraints and public markets gaining traction again.

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State Street Global Advisors Worldwide Entities

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The views expressed in this material are the views of Vladimir Gorshkov and Elliot Hentov through the period ended 19 February 2024 and are subject to change based on market and other conditions.

This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

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Past performance is not a reliable indicator of future performance.

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Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

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Investment Trends Among Sovereign Wealth Funds Asset Allocation Stable, Returns Less Volatile

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