2026 Perspectives for the Public Sector

Segment Key Objectives and Constraints Emerging Strategies SovereignWealth Funds (SWFs) • Dual mandate to preserve wealth and generate returns for future generations; in some cases, also to support sovereign goals such as stabilizing government revenues • High allocations to private and illiquid assets with long time horizons • May have lower immediate need for liquidity, many creating liquidity buckets to meet varying needs and returns • Expectations to retain liquidity for mandated distributions or obligations • More dynamic portfolio construction: Acknowledgement of illiquidity risk; planning fixed income and liquid asset portions to offset private and/illiquid exposure • Liquidity buckets: A small, liquid portion may be used for stabilization or short-term spending, while a larger, less liquid portion is invested for long-term growth • Risk-return optimization: Balancing the pursuit of high long-term returns with the need to meet potential, though low, redemption risks • Strong governance and oversight to maintain discipline around liquidity thresholds, drawdowns, and exit risk Conclusion and Outlook Today’s global landscape —marked by inflation, geopolitical complexities, and regulatory evolution — demands a proactive and adaptive approach to liquidity and investment management. For public sector entities, optimizing investment performance, embracing advanced automation, and prioritizing safety and soundness are no longer optional but imperative. The traditional playbook of holding large reserves in ultra-low-risk assets with limited yield is increasingly unsustainable amid rising costs of carry, tighter capital conditions, geopolitical risks, and pressure to deploy capital into growth sectors. The central question is not whether to hold liquidity but rather howmuch, in which vehicles, and at what opportunity cost. Deploying targeted liquidity optimization strategies, while maintaining sufficient flexibility to adapt to shocks and the discipline to avoid idle cash, will be vital. By strategically implementing these pillars, organizations can not only mitigate risks but also unlock efficiencies and opportunities, ensuring resilience and long-term success in an uncertain world. Safety & Soundness Return on Investment Automation Efficiency & Transparency 1 2 3 Citi Perspectives for the Public Sector 17