Sovereign investors pulled back from equities in fourth quarter

Sovereign wealth fund investment in equities via external asset managers fell in the final quarter of last year, data from research firm eVestment showed on Thursday. A total of $4.85 billion was pulled from global equity strategies overseen by third-party fund managers during the quarter, after two quarters of inflows, while $1.87 billion left emerging market equities, outflows particularly striking given global stocks have continued to touch record highs.

With the exception of the third quarter, when there was a surge in investment into passively managed stocks in the United States and equities in mainland China and elsewhere, sovereign funds have been removing assets from equity strategies at an elevated rate since 2018.

Sovereign wealth funds, among the largest investors in global stocks, own close to $3 trillion in equities, including assets they hold directly as well as through third-party managers, and about half as much in fixed income, estimates State Street Global Advisors.

"The reported asset base of sovereign wealth investors is coming from a diverse set of managers dealing with a diverse set of sovereign investors, however there is clearly a preference from some underlying funds to reduce exposure to equities, both global and emerging, both passive and active," said eVestment head of research Peter Laurelli.

Global stocks surged in the final quarter of last year, helped by hopes of progress in trade relations between the United States and China. That rally has continued into 2020.

"Earlier in the year (2019), we noticed that many SWFs rotated their risk budget from equities to private markets, though this was a marginal shift and partially distorted by the equity drawdown," said Elliot Hentov, head of policy research at State Street Global Advisors.

Within fixed income, the picture was less clear. While $727.4 billion flowed into US fixed income, $3.54 billion left global fixed income strategies, the data showed.