At our second Sovereign Investment Circle, we discussed why mega-trends like slowing globalisation and climate change means sovereign investors need to think differently about diversification. More
Benno Klingenberg-Timm spoke with Asian Investor about the benefits of setting up SWFs to invest foreign exchange reserves.
It is not necessarily a prerequisite but the experience of Singapore or China shows that the “diversification for foreign reserves becomes more efficient and the return on accumulated wealth is higher.”
Head of APAC sovereign clients
What are the benefits of SWFs?
Benno lists 3 benefits of establishing SWFs:
- Attract talent and skills at competitive market rates – this can help SWFs invest more effectively;
- Act as a “centre of excellence” that could potentially benefit the country through the transfer of knowledge around global capital markets and financial expertise; and
- Provide potentially higher return due to a wider investment universe
Assessing the performance of SWF
Benno says that recently well-established SWFs have assessed their performance again a “reference portfolio”. This is a simple benchmark which comprises listed equity and fixed income only – usually 70% equity and 30% fixed income.
The SWF needs to beat the reference portfolio by diversifying “across a wide range of asset classes including alternative asset classes and active management.”
Perspectives matter. Tune in to our insights.
The Business Times reports sovereign investors watch for demographics, tech disruption and sustainability. More
At our Sovereign Investment Circle, sovereign wealth funds discussed how technology disruption and other mega trends can determine long-term investment success. More
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