The Middle East sovereign investors’ strategy is shifting fast. Sovereign wealth funds (SWFs) are adapting to geopolitical risks and shifting market conditions. Invesco’s Global Sovereign Asset Management Study shows a major strategic recalibration.
Geopolitical tension is the top short-term risk for 84% of Middle East SWFs. Conflicts in the region follow at 68%. A complete 96% believe rivalry between nations will fuel volatility. Protectionism is expected to sustain global inflation, said 91% of respondents. Over half now view globalization as a significant threat to returns.
The study surveyed 141 senior professionals from 83 SWFs and 58 central banks, managing $27 trillion. These insights highlight a new Middle East investment strategy focused on flexibility and diversification.
Active and Fixed Income Strategies Lead the Shift
The Middle East sovereign investors’ strategy now favours active portfolio management”SWFs in the region allocate 78% of equities and 77% of fixed income to active strategies. Although passive investing remains useful, active tools are preferred to handle risk and dispersion.”
Thirty-three percent of SWFs aim to increase their active equity exposure within two years. Half will raise active fixed-income holdings. This marks a significant pivot in Middle East investment strategy, aligning with today’s volatile environment.
Fixed income is no longer just for stability. It’s now a key growth area. Approximately 30% of SWFs intend to increase their fixed income exposure over the next year. Infrastructure remains the top asset, but bonds are rising in importance.
Diversification Deepens with Private Credit and China Exposure
Private credit is central to the strategy of Middle East sovereign investors. “Although 63% of SWFs use funds, 50% invest directly.”40% plan to boost private credit in the next year, seeking uncorrelated returns.
China remains a key priority in the Middle East’s economic strategy. SWFs are targeting AI, EVs, and tech sectors. Most use specialist managers for emerging markets. Only 25% rely on passive EM strategies.
Digital assets are gaining interest. 22% of Middle East SWFs have invested directly. Regulatory barriers and volatility are concerns.
“Gold and reserve diversification are rising among central banks. “Consequently, sixty-seven per cent plan to grow their reserves; furthermore, 63% expect to increase their gold holdings”Moreover, investors are using ETFs and derivatives to add flexibility in gold allocation. Middle East sovereign wealth funds are evolving actively. They are redefining the Middle East economic strategy for a complex future by employing diversified tools and asset classes.”
