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Institutional investor and sovereign wealth fund activity during the pandemic: Reasons for optimism?

Working with State Street Corporation, one of the world's leading providers of financial services to institutional investors, the International Forum of Sovereign Wealth Funds has published Institutional investor and sovereign wealth fund activity during the pandemic: Reasons for optimism?

Drawing on State Street’s extensive dataset of unique indicators,1 and interviews with seven of IFSWF’s largest members, the research reveals that many sovereign wealth funds and institutional investors have gradually deployed some of their accumulated cash and reduced fixed income positions to add exposure to risk assets, while financial markets rebounded during the pandemic. Institutional risk sentiment across asset classes has also broadly improved during the period up to March 2021, particularly for foreign exchange, commodity-sensitive assets and equity reallocation decisions.

Previous IFSWF and State Street research published in May 20202 suggested that institutional investor positioning was cautious at the start of 2020, with cash levels at their highest since the 2008-09 financial crisis. The latest dataset reveals investors have a more positive outlook for 2021, as they have started to redeploy capital and have reached a risk-neutral level across asset classes. Sovereign wealth funds largely achieved this position by increasing allocation to equities, taking advantage of cheaper prices amid 2020’s poor market performance.

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1 State Street’s dataset of unique indicators capture aggregated and anonymised capital flows, portfolio positions and behaviour of long-term institutional investors representing more than $38 trillion in assets under custody and administration at State Street.

2 IFSWF & State Street (2020) “Pandemic, no panic: Evidence from Institutional Investor flows”, published 14 May 2020

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