Public investors plan move to government bonds in safety play

© Reuters.

By Tom Arnold

LONDON (Reuters) – More public institutions, including central banks, sovereign wealth funds and public pension funds, plan to increase their weighting in government bonds than cut back, as they chart a move to perceived safety during the COVID-19 pandemic.

More than a quarter of the 71 public institutions surveyed said they were looking to raise their allocations to government bonds, compared with 13% who said they intended to decrease investment, according to a survey by Official Monetary and Financial Institutions Forum (OMFIF).

It was the first time in the annual survey’s history that more investors had indicated growing demand for government debt, after several years of shifting investments away from low-yielding bonds.

The survey, conducted between April and June, polled 750 institutions, including 490 public pension funds, 174 central banks and 86 sovereign funds holding around $39.5 trillion in assets.

At the same time, many public investors were also planning to add risk assets such as equities and infrastructure, particularly in developed economies.

And despite worries about pandemic-related price corrections, 30% of institutions said they planned to up their allocation to equities, many of them significantly so, with only 5% aiming to cut back.

Institutions were also looking to real assets over the next 12 to 24 months, with around a third of pension funds and sovereign funds aiming to raise holdings of real estate and nearly two-thirds of sovereign funds seeking more infrastructure investment.

The popularity of alternative assets reflected concern about returns for investors in other parts of their portfolio, OMFIF said, based on the survey results.

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Since the start of 2020, many institutions have begun drawing down reserves to support their economies during the COVID crisis, OMFIF said, adding some sovereign funds have acted as rainy day funds in using reserves to aid stimulus programmes or take over distressed companies, such as airlines.

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