Political and Regulatory Decisions Have Become the Main Drivers of Investment Strategy, Leading Sovereign Investors to Fundamentally Reassess Portfolio Construction and Risk Management, According to the 13th Annual Invesco Global Sovereign Asset Management Study.
While geopolitical tensions (88%) and inflationary pressures (64%) remain the main short-term risks for sovereign wealth funds and central banks, concern over excessive volatility in financial markets has increased—cited by 59% of respondents, up from 28% in 2024. Nearly 90% believe that geopolitical competition will be a key driver of volatility, while 85% expect protectionist policies to entrench persistent inflation in developed economies. Specifically, 62% of those surveyed now see deglobalization as a major threat to investment returns, highlighting a marked shift in market narrative.
The Invesco Study—One of the Leading Indicators of Sovereign Wealth Fund and Central Bank Behavior—Is Based on the Views of 141 Senior Investment Professionals, including Chief Investment Officers, Heads of Asset Classes, and Portfolio Strategy Leads, from 83 sovereign wealth funds and 58 central banks around the world, collectively managing $27 trillion in assets.
Active Strategies Gain Ground Alongside Core Passive Exposure
One of the key changes in portfolio structuring identified in the study is the increased use of active strategies by respondents. On average, sovereign wealth funds and central banks hold more than 70% of their portfolios in active strategies, both in fixed income and equities.
The survey revealed that 52% of sovereign investors plan to increase their active equity exposure over the next two years, while 47% plan to do the same with fixed income. This shift is more pronounced among the largest institutions: 75% of sovereign investors managing over $100 billion have adopted more active equity strategies over the past two years, compared to 43% of mid-sized investors and 36% of smaller ones.
This growing interest reflects a broader rethinking of diversification, as traditional correlations between equities and bonds erode in an environment of higher rates and elevated inflation.
Sovereign debt investors are turning to private credit to gain exposure to floating rates, customized deal structures, and return profiles that are less correlated with public markets. Private debt, once considered a niche asset class, is now viewed as a strategic pillar for building long-term portfolios.
“Private fixed income is an excellent example of how sovereign investors are adapting to a structurally different market environment. They are building portfolios that prioritize resilience and flexibility, and private fixed income offers exactly that—providing both scalability and greater control,” says Rod Ringrow.
China Reemerges as a Strategic Priority in a Fragmented Emerging Markets Landscape
Sovereign wealth funds are taking a more selective approach to emerging markets. However, Asia excluding China remains a priority for 43% of respondents. China continues to be one of the main areas of focus, rising from 20% in 2024 to 28%. Sovereign funds are increasingly directing their strategies in China toward specific technology sectors such as artificial intelligence, semiconductors, electric vehicles, and renewable energy.
78% of respondents believe that China’s technological and innovation capabilities will be globally competitive in the future.
Gold continues to play a central role in this effort, with 47% of central banks expecting to increase their gold allocations over the next three years. Seen as a politically neutral store of value, gold is increasingly viewed as a strategic hedge against risks such as rising U.S. debt levels, the weaponization of reserves, and global fragmentation.
At the same time, central banks are modernizing the way they manage their gold exposures. In addition to physical holdings, more institutions are turning to dynamic tools such as ETFs, swaps, and derivatives to adjust allocations, enhance liquidity management, and increase overall portfolio flexibility—without sacrificing defensive protection. This trend is expected to continue, as 21% of respondents say they plan to invest in gold ETFs over the next five years, up from 16% currently, while the number of respondents planning to invest in gold derivatives is set to double, rising from 9% to 19%.