Sovereign, public pension funds investing more in real estate and infrastructure: report

SOVEREIGN wealth funds and public pension funds have been moving aggressively into real estate and infrastructure to offset low returns in traditional markets, raising the risk of asset bubbles, said the Global Public Investor 2015 (GPI 2015) report. The survey of 500 global public-sector institutions across 180 countries found that central banks, on the other hand, continue their purchases of equities.

Total assets under management, including gold, of these 500 public sector asset managers rose 1.8 per cent or US$520 billion in 2014 to US$29.7 trillion. Growth was primarily driven by public pension and sovereign funds.

The Official Monetary and Financial Institutions Forum (OMFIF), the global research and advisory group behind the report, estimates that 9.1 per cent or US$2.7 trillion of the total assets held by the 163 central banks, 89 sovereign funds and 248 public pension funds surveyed lie in real estate and infrastructure.

This estimate is based on a survey OMFIF carried out in November 2014, which also found that 44 per cent of sovereign funds and public pension funds intend to raise their real estate and infrastructure holdings in the next three to five years. Fifty per cent intend to maintain their current holdings, and only 6 per cent will lower their allocations to this asset class.

The report added that asset price bubbles have been building up in sections of capital markets as a result of central banks' quantitative easing, and may now be spreading to real estate and infrastructure investment.

GPI 2015's ranking of the top 10 global public investors by the size of their total assets under management remained largely unchanged from a year ago. The People's Bank of China topped the list again with assets of US$3.9 trillion, followed by the Japanese Monetary Authorities and Japan's Government Pension Investment Fund. The only new entrant to the top-10 list was Italy's sovereign fund Cassa Depositi e Prestiti, which rose a spot to replace the Central Bank of the Russian Federation in 10th place, after Russia depleted reserves last year to stop the rouble's fall.

Singapore institutions on GPI's ranking of the 500 global public investors did not change much from a year ago either.

According to GPI, GIC's assets grew 4.1 per cent to US$333.1 billion and climbed a spot higher to 19th place. The Monetary Authority of Singapore's assets fell 5.9 per cent to US$256.9 billion, but kept its 24th place ranking.

The Central Provident Fund's assets rose 6.3 per cent to US$202.5 billion to rank 27th. Temasek Holdings, which prefers to refer to itself as an investment company but was included in GPI's list as a sovereign wealth fund, saw assets rise 3.3 per cent to US$177.3 billion, keeping its 39th placing from a year ago.