Gold Sees Increased Attention From Sovereign Wealth Funds - PwC
(Kitco News)- It’s not just retail investors who are taking a shine togold as an important portfolio diversifier, with a new report from PwC highlightinggrowing demand for the yellow metal from Sovereign Wealth Funds (SWF).
According to the report, state-owned investment funds areturning towards alternatives assets like private equities, real estate,infrastructure and commodities like gold. The consultancy firm noted thatassets under management in SWF have nearly doubled in the last 12 years,growing from $1.9 trillion in assets under management in 2004 to $7.4 trillionin 2016.
As part of the overall growth, interest in alternativeassets have increased, with allocations jumping to 23% in 2016, the reportsaid.
“In line with the total growth of assets, PwC expectstheir investment strategies to incorporate more alternative assets into theirportfolios,” the report said. “This rise in alternatives can provide portfoliodiversification to traditional assets such as equity and bonds, supporteconomic development, and be used as a hedge against crises which is alignedwith the long-term investment horizon of SWFs.”
Historically, SWFs have focused on investing in fixedincome markets, but PWC said that this market has become less attractivebecause of falling interest rates and as a result these funds have expanded thescope of their portfolio.
The report pointed out that gold has been attracting moreattention as it has it is little correlation with other assets over a longperiod of time.
PwC noted that while gold might do poorly in a short periodof time, the metal shines in the long-term. The research noted that gold over a10-year period saw returns of 6.7%, only behind infrastructure assets, whichincreased 8% and private equity, which saw increase of 8.6%. Equities, on theover hand, only increased 4.9%.
During a 20-year period, gold again is one of the topthree performing assets, increasing 6.8%, with real estate increasing 8.4% andprivate equity increasing 8.6%. During the same period, equities show gains of5.2%.
“Gold’s long-term performance isattributed to three factors: increased demand from emerging markets, centralbanks becoming net buyers, and the emergence of new products, such asgold-based ETFs, which have simplified investing and made the material moreaccessible,” the report said.
The consultancy firm said that it expects SWFs tocontinue to look to gold as an important diversifier.
“Given that gold is a strategicinvestment, the asset class may gain momentum among this investor class in thecoming years,” the report said. “Stabilization funds may, in particular,benefit from adding gold among their holdings as they are required to holdhighly liquid assets to counter the effects of sudden macroeconomic shocks.”
PwC worked in collaboration withthe World Gold Council to study the investment flows within SWFs.
By Neils ChristensenFor Kitco News
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