Global public pension funds and sovereign funds are refocusing on generating long-term returns, generally targeting opportunities in private markets, emerging markets and green assets, according to the Official Monetary and Financial Institutions Forum “Global Public Funds 2024” report.
Based on discussions with 28 global public pension and sovereign funds with more than $6.5 trillion in assets under management, the report—“New Horizons: Funds refocus on investments for the long term”—found that in 2022 and 2023, nearly half of the funds surveyed cited inflation as their primary macroeconomic concern.
With price pressures now easing, these funds are shifting focus to the long-term drivers of economic and market outcomes, with close to 60% identifying technological change or equilibrium real interest rates as the key factors shaping their five- and 10-year investment strategies.
Global public funds were also found to be prioritizing returns over liquidity by increasing their allocation to private markets. For the third consecutive year, infrastructure remained the most sought-after asset, with nearly 60% of respondents aiming to increase allocations, while more than 40% plan to shift toward private credit or private equity in the next year or two.
One-quarter of surveyed funds, meanwhile, plan to reduce cash holdings, which the report stated reflects a growing appetite for risk. More than 40% reported plans to increase allocations to public equities, while just 8% plan to boost government bond holdings, and none aim to raise corporate bond allocations in the next two years.
Many public pension and sovereign funds also reported plans to increase allocations to private markets and real assets within their sustainable portfolios, aiming to “influence the real-world transition.” Most respondents representing funds (56%) think they can make the biggest impact on transition finance via private equity, compared with 25% through public equity.
Separately, the majority (58%) of respondents now view India as the most attractive emerging market, up from 38% last year, driven by strong macroeconomic fundamentals and a favorable regulatory environment. Notably, large funds like the Korea Investment Corp. and the Abu Dhabi Investment Authority have established a local presence in India this year.
In contrast, no funds selected China, down from 23% last year, as geopolitical risks and economic challenges have led many funds to reduce their investments there.
“Geopolitics continues to have a major bearing on how they view their investments,” wrote Clive Horwood, managing editor and deputy CEO of OMFIF, in the report’s forward. “Concerns about the impact of tariffs and protectionism loom large.”
This article appeared in our sister publication, Financial Standard, which, like CIO, is owned by ISS STOXX.
Tags: Clive Horwood, India, long-term investing, Official Monetary and Financial Institutions Forum, public pension funds, sovereign wealth funds