Trends in sovereign wealth fund strategies

April 13, 2011

A couple weeks ago, State Street published an insightful article titled Current Issues in Official Sector Asset Management, which discusses how sovereign funds are changing the investment styles based on their experience with the market over the past few years.

The key hypothesis behind the article is that sovereign funds are striking new balances between conflicting goals – preserving capital vs. remaining liquid vs. investing for long-term capital growth.  The article suggests that sovereign funds behave in one of three ways:

  • Central banks with traditional reserve management policies that focus on security, liquidity and return
  • Store of wealth funds that emphasize long term capital growth
  • Funds that strike a balance – for example, stabilization funds – between may be called on to provide liquidity but are also expected to generate returns

In order to strike a balance, State Street argues that sovereign funds are by default managing assets passively unless there is justification to seek alpha.  And when funds look for returns, they are migrating to emerging market bonds, for both better absolute returns and for diversification away from major reserve currencies that have become more unstable in the last couple years.  But sovereign funds are doing so carefully, as the level of scrutiny they face from their governing bodies has increased rapidly as loss rates have multiplied.

Thomson Reuters PORTIA has provided comprehensive solutions to sovereign funds for decades, across all geographies.  But we believe that the trends observed by State Street highlight why PORTIA is more relevant than ever for the management of the middle-to-back office of sovereign funds:

  • PORTIA’s strength in managing fixed income solutions will serve sovereign funds well as they invest in more complex products from emerging markets
  • PORTIA’s ability to handle multiple currencies is best-of-breed in the industry
  • PORTIA is reliable, secure and proven – and is supported by Thomson Reuters, one of the world’s largest and most respected providers of information services

For more information on how PORTIA supports sovereign funds, visit our website at http://bit.ly/f8gmOj or contact us at Portia@thomsonreuters.com.  Also, I recommend you read the original State Street article for more insights.  Are you seeing the same trends with sovereign funds?

-Matt Bellias, Director of Strategy and Marketing

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