Sovereign wealth funds are increasing allocations to private equity, private credit and infrastructure as they seek exposure to AI-driven investment opportunities while reducing reliance on increasingly concentrated public equity markets, according to a report by the FT.
Citing Invesco’s latest survey of 90 sovereign wealth funds managing a combined $17.2 trillion, a net 17% of respondents reportedly plan to reduce exposure to listed equities this year. By contrast, between 28 and 35 per cent intend to increase allocations to private equity, private credit and infrastructure, with infrastructure allocations nearly doubling to an average of 9% between 2022 and 2025.
The report suggests the AI investment cycle is accelerating demand for private assets, particularly those linked to the buildout of data centres and the energy infrastructure required to support them.
Singapore’s Temasek reportedly has almost half of its portfolio invested in unlisted assets, while Abu Dhabi’s Mubadala has allocated 59 per cent of its assets to private equity, infrastructure and real estate. The shift is also being driven by growing concerns over concentration in public equity markets. The weighting of the 10 largest companies in the S&P 500 has risen to 38% over the past decade, prompting investors to reassess the diversification benefits of passive equity strategies.
Invesco’s research also found sovereign wealth funds are questioning traditional portfolio construction as the historical diversification benefits between equities and bonds have weakened following the inflation shock of 2021 and 2022.
