The ever-expanding macro-environment has made it increasingly challenging for state-owned investors (SOIs) to have influence on continued economic growth. While some primary pillars such as the global inflation rate and interest rates have seemed to be under control and may even have begun to decline, other factors have impacted the prosperity of SOIs. An unpredictable geopolitical position has been looming across the globe and has exacerbated economic concerns. SOIs have been further stunted by an increasing global anguish surrounding the severity of climate change that has had an influence on the financial policies of nations.
While SOIs are large institutions that often hold some level of control over the markets, they are not immune to the political and economic pressures that can affect investment choices and even alter long-term financial strategies.
Shifts to long-term investment strategies
Many leading SOI funds such as Norges Bank Investment Management (NBIM) and the Abu Dhabi Investment Authority (ADIA) follow a standardized long-term portfolio strategy that may be adjusted in reaction to medium and short-term environmental changes. Most often funds allocate a high level of assets to equities and fixed-income securities while also keeping a percentage of the portfolio liquid through cash investments. Investment activity saw a decline in 2023 in terms of both investment deal volume and value. The reduction in investment activity amongst SOIs may point towards caution when managing assets and operating in the market. Institutional investors have typically had access to large pools of resources and hold the ability to participate in the market as they see fit. In recent months many have chosen not to invest. Some SOIs have even begun divesting holdings. Such actions have pointed in the direction of conservative portfolio management due to uncertainty and a lack of confidence in the financial landscape, economic conditions, and overall global environment.Further requirements around asset allocation
A growing emphasis on climate change alongside other humanitarian topics has led to an increased global push towards the degree of politicization around Environmental, Social, and corporate Governance (ESG), with almost 60 percent of institutional investors worldwide reporting a change in their investment approach. Nations across the globe have been working towards achieving targets such as the United Nations Sustainable Development Goals (SDGs). This has underlined the importance of ESG drivers further impacting investment decisions worldwide. When put into the context of SOI investment in black and green assets, there has been an increasing investment value in favor of green assets.While SOIs are large institutions that often hold some level of control over the markets, they are not immune to the political and economic pressures that can affect investment choices and even alter long-term financial strategies.
