There were recent revelations, for example, that the CEO of the Norwegian sovereign wealth fund had been rubbing shoulders with wealthy billionaires and taking gifts in kind. For one of the wealthiest funds in the world, in one of the world’s fairest societies, this was considered scandalous behaviour and resulted in his resignation and replacement.
That being said, there’s more than a hint of dull everyday risk management involved when we think of potentially trillions of tax payers money, but when it comes to risk management with some of the world’s wealthiest sovereign funds, what would you do when faced with an unprecedented global economic shock?
The answer, it seems, is far from simple and there are people far better paid than ourselves in charge of making those decisions, but the answer probably doesn’t lie within risky industries for the foreseeable future whilst things settle down.
So with that in mind, and if you had potentially trillions of pounds worth of tax payers money to invest, with safety as your core strategy, where would you look to?
In an article in The Economist, they suggest that sovereign wealth funds are looking at some lean years ahead whilst the riskier investments that they’d held no longer hold the attraction they once had.
There were times, until recently, that large-scale tech start-ups, for example, were premium investment real estate.
That will probably no longer be the case with the post-Covid economy as entire industries and economies re-align themselves.
There are a few probables we can consider. Firstly, that fossil fuels like oil and coal appear to have had the final nail hammered into their coffins, as well as other non-green industries. Given that current estimates are that global emissions have dropped around 17% it’s inconceivable that global governments will consider a return to normality.
Are there alternatives? Plant-based alternatives and environmentally friendly products are probably a good bet but still represent significant risk for largescale funds, so the alternatives probably lie in safe bets with slightly lower returns.
Government and corporate bonds are always safe bets, but UK property probably represents much better value at a similar risk.
There was actually a report from the Financial Times recently that local councils were due to have their budgets more closely audited as they were investing so much into property in uncertain times.
This more than likely offers a fairly accurate prediction of how these types of investments will go, and there are already indications of heavy inward investment flow into the UK market.
In times of unprecedented disruption, it’s inevitable that larger funds will look for security with a reliable income, and UK property certainly represents the type of safety that industrial investors seek.
Recent government figures, for example, show that even at the peak of the epidemic, in March, house prices only dropped 0.1% for the month, and year-on-year growth was at 2.2% which represents extremely robust growth for the industry as a whole.
Data released by The Telegraph in February also showed that yields around the country for buy-to-let are at their strongest for years, with demand outstripping supply in most areas, driving growth in yields.
Who’s to know how long this will last, the consensus seems to hold that the bounce back will be fairly swift, but in the meantime, safety will take precedent.
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