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Citi Perspectives for the Public Sector
|
2015 – 2016
27
Investments
in Real Estate
is the most
common
method for
GIFs to
enter the
Alternatives
space.
Government Investment
Funds: Investment
Strategies in the
Alternatives Space
Sovereign Wealth Funds, Pension Funds and Central Banks
— collectively Government Investment Funds (“GIFs”) —
manage approximately $10-$12 trillion in assets globally.
Despite their diverse investment objectives, GIFs, for the
most part, have a higher proportion of their portfolios
allocated to relatively liquid asset classes, such as public
equity and fixed income securities.
However, recently, as these funds have grown significantly in terms of size, they have refined their
investment mandates to take on more risk. As a result, we have seen an increased allocation by
many GIFs to the Alternatives Asset class. Here, we broadly define Alternative Assets as direct and
indirect investments in Real Estate, Infrastructure and Private Equity. This category of investments
is less liquid, allows an investor to manage through economic cycles (without the need to mark-to-
market on a daily basis), and provides portfolio diversification beyond the typical risk-return tradeoff
afforded by traditional public equity and fixed income investments. While this trend for increased
Alternatives exposure has been driven in large part by the inherent volatility of the public markets,
as well as a need for predictable and stable returns, increasing concerns of potential global inflation,
especially on the heels of significant monetary easing by the Central Banks, has also played a part.
Today, many GIFs are focused on owning real assets or having exposure to them as a hedge against
this risk.
In this article, we review GIFs and their activity within the Alternatives space, and highlight
potential investment strategies that could be utilized by a number of GIFs looking to increase their
Alternatives allocation, as well as by a number of recently established funds who are considering
exposure to these assets.
Real Estate
Investments in Real Estate is the most common method for GIFs to enter the Alternatives space. GIFs
have found it easier to access this particular asset class for a number of reasons, including ease of
understanding the risk-return profile, availability of assets, access to investment vehicles catering
to a Real Estate strategy as well as general liquidity and appetite for the sector. Historically, most
GIFs gained initial exposure to the sector through a) Limited Partner investments with third-party
Zubaid Ahmad
Vice Chairman,
Institutional Clients
Group, Global Head,
Sovereign Wealth
Funds, Citi