News Update: BT 25 Aug 2020 Sovereign Wealth Funds rethink once-reliable real estate

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An interesting article that I had come across regarding ‘Sovereign Wealth Funds (SWFs) rethink once-reliable real estate’

My thoughts:

While the article give a very good account of the ‘rebalancing’ of asset class of real estate portfolio of SWFs, we have to remind ourselves of the scale of the SWFs.

They are huge funds that goes to hundreds of billions and trillions of dollars.

To put things into context, the statements in bold would be quite interesting, and we should ask the following questions:

Is this rebalancing a temporary switch due to the anti-pandemic measures like, WFH and social distancing?

Or is it due to the structural change of how human conduct businesses? Even after Pandemic?

And how would human interact socially in the post-pandemic world?

What are your thoughts?

Summary of Article:

It had mentioned that Global SWF, an industry data specialist, accounted for that: SWFs invested US$4.4bin the first seven months of 2020, 65% down from the same period a year ago.

Global SWF also mentioned the nature of property investments is also shifting, with funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic while cutting back on deals for offices and retail buildings

A big question is whether the changes are structural for the funds, for which property is an asset-class staple at about 8 percent of their total portfolios on average, or a temporary response to a huge, unexpected, and unfamiliar global event.

“Real estate is still a big part of sovereign wealth fund portfolios and will continue to be so,” said Diego López, managing director of Global SWF and a former sovereign wealth fund adviser at PwC.

Sovereign funds have also largely steered clear in 2020 of new direct investments in London or Los Angeles, hotspots in normal times, according to property services firm Jones Lang LaSalle (JLL), which said SWFs were “on the defensive”.

The funds’ advance in logistics properties, such as warehousing and goods distribution centres, comes at a time of high demand as people have bought everything from toilet paper to trainers from home during lockdowns.

So far this year, logistics have accounted for about 22 percent of funds’ real estate investments by value, compared with 15 percent in 2019 as a whole, the Global SWF data shows.

Meanwhile, investments in offices have fallen to 36 percent from 49 percent last year, and in retail property to zero versus 15 percent.

In an uncertain world, some academics argue that property remains a solid bet for savvy investors.

Ms. Barnes of UCL said sovereign funds could be “lighter on their feet” than some other institutional funds and more able to adjust their behaviour to suit changing circumstances.

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