Sovereign wealth funds (SWFs) are increasingly divesting
from external asset managers and bolstering their internal resources in what is
becoming a noticeable feature among other large institutional investors.
A number of SWFs have scaled back on third party managers
citing market volatility and in some circumstances a combination of high fees
and lacklustre performance. It was reported the Saudi Arabian Monetary Agency
with investments of $661 billion had withdrawn $70 billion from third party
managers. Others including the Abu Dhabi Investment Authority have also grown
their in-house teams and curtailed external investments.
One expert said SWFs were highly sophisticated investors
with enormous cash reserves, and such progression was natural. He highlighted
many were analysing the virtues of in-sourcing asset management to assess
whether they can maximize returns in this volatile market environment.
A study by Invesco Asset Management of 59 SWFs found 41% now
had internal real estate investment teams in 2015 versus 31% in 2013. The
number of SWFs utilising in-house private equity teams also increased slightly
from 26% in 2013 to 28% in 2015. Nonetheless, the number of internal
infrastructure teams fell dramatically from 26% in 2013 to 16% in 2015, added
the Invesco study.
The decision to move certain investment strategies in-house
has also been driven by fee concerns in some circumstances, and it is possible
that other institutional investors may increasingly in-source including large
pension funds.
This could well occur in the UK following the
government’s announcement that it would welcome consolidation among the
country’s 89 local council pension funds. Consolidation would result in the
creation of a handful of large pension funds which would have more negotiating
clout on fees and internal resources to build up in-house asset management
teams.