Sovereign wealth funds and central banks managing a combined $27 trillion are shifting toward active fund management and diversifying their holdings to manage growing global risks, according to a recent survey by an independent investment management firm, Invesco.
The report showed that sovereign funds are increasing investments in China, particularly in technology, with nearly 60% planning to raise allocations there over the next five years. In North America, that number rises to 73%, despite rising tensions between the U.S. and China.
In Europe, only 13% of respondents plan to increase exposure to China.
Funds see strategic value in China’s innovation sectors, such as semiconductors, artificial intelligence, electric vehicles, cloud computing, and renewable energy. The report noted that this shift is being driven by a sense of urgency to gain exposure to China’s growing tech leadership.
Central banks, meanwhile, are building larger and more diversified foreign exchange reserves. About two-thirds of the 58 central banks surveyed said they are preparing for increased market volatility. Over 70% expressed concern that rising U.S. debt is weakening the long-term outlook for the dollar.
Still, the U.S. dollar remains the dominant global reserve currency. Some 78% of central banks said it would take more than two decades, or possibly longer, for any serious alternative to emerge.
Only 11% of respondents see the euro gaining ground, down from 20% last year.
Last year, sovereign wealth funds earned an average return of 9.4%, one of the highest levels in the survey’s history. However, concerns are growing about long-term risks, including climate change and rising sovereign debt.
Funds are also increasing interest in private credit, with 73% now using it as a source of income and resilience, up from 65% a year earlier. Half of them are actively increasing allocations in this area.
Digital assets are also drawing attention. While 75% of funds said they would consider investing in bitcoin, nearly half expressed interest in stablecoins, which are cryptocurrencies typically pegged to the U.S. dollar.
Interest in stablecoins is especially growing among wealth funds in emerging markets.
