Introduction Key themes We published our first report on the sovereign asset management industry in 2013 following Shift from investment strategy to business model interviews with 43 sovereign investors. This year The gap between target and actual portfolio returns marks our fifth annual study with evidence-based along with declines in investment commitments are findings based predominantly on face-to-face reshaping sovereigns’ strategic agendas. interviews with 97 leading sovereign wealth funds, state pension funds and central banks with assets Increasing appeal of perceived ‘safe haven’ markets in excess of USS12 trillion. Geopolitical uncertainty is leading to a focus on Over the past five years we've noted a number perceived ‘safe haven’ international markets and of factors influencing sovereigns such as low home markets. interest rates, the falling oil price and reduced funding. This year however we note geopolitical Attraction to real estate for matching and shocks in developed markets are shaping decision flexible participation making. When coupled with uncertainty over the Sovereigns are increasing allocations to high-quality end of quantitative easing, the commencement direct real estate given perceived return, matching of quantitative tightening and ongoing volatility and flexibility attributes. in currencies and commodities it’s clear sovereign investors are faced with a challenging macroeconomic Environmental, social and governance (ESG) and therefore investment environment. growth dependent on performance data The first theme in this year’s report addresses Perspectives on ESG are polarised with supporters the aforementioned factors and notes a continuing moving to further embed and integrate ESG in return gap between target and actual returns with investment processes while non-supporters wait asset deployment challenges limiting the ability for for evidence of investment implications. sovereigns to match strategic asset allocation targets. We note s