Official institutions seek new horizons

Official institutions — defined as central banks, sovereign wealth funds and public pension reserve funds — are looking to invest in new markets and a broader range of assets in their search for greater returns, according to a report by State Street.

The research reveals changed investment objectives post the GFC crisis period, as official institutions strive for higher returns whilst safeguarding economic growth and stability in their role managing national wealth.

This has resulted in expanded investment parameters where central banks have moved away from G3 government bonds into emerging market debt and equities, while sovereign wealth funds are investing in private equity, commercial real estate and increasingly infrastructure projects.

Despite concerns about the challenges associated with new markets and asset types, 80 per cent of official institutions surveyed in the report expect to increase their exposure to new markets, where they have the appropriate mandate.

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This move into new asset types is creating new levels of portfolio complexity, which presents challenges in the areas of currency risk, market risk and the need to manage the diverse regulatory requirements of international markets, said the report.

Official institutions are required to be more adaptable to new risks with an efficient yet resilient operating model to meet challenges identified in this research, said State Street head of Official Institutions Asia Pacific, Henry Quek.

"This means reducing costs while not compromising on standards, finding the right combination of people, process and technology to support investment needs and operational challenges, and using the right data to generate insights that support better-informed investment decisions," said Quek.