Sovereign wealth funds not immune

Sovereign asset managers are strategically shifting from active investment management towards a more passive approach in the wake of the global financial crisis and turbulent financial markets, according to new research released by State Street Global Advisers.

The State Street research, published in a new paper, suggests some sovereign debt funds are making significant changes, with greater focus being placed on the possibility of accessing different and independent sources of economic value such as land and infrastructure to help diversify sovereign portfolios.

Commenting on the research, SSgA's senior managing director for the official institutions group, John Nugee, said official sector asset managers such as central banks, governments and sovereign wealth funds had not been immune to the difficult market conditions.

"Many have re-examined the performance of their funds, lessons they should draw from the market turmoil and the extra defences they need in their approach," he said.

Nugee said that in many cases the review process had confirmed that while their guiding principles were correct, a number had decided to make some important changes.

The State Street research said that as well as pursuing a diversification strategy, there had been renewed interest in funds protecting themselves against extreme losses, with a possible role for 'tail' or 'disaster' insurance.

However, it noted that this type of insurance was very expensive and the scale required to cover sovereign funds had led many to conclude that insurance against loss is not viable.

by Mike Taylor