Sovereign segmentation is crucial to understanding Investment sovereigns attitudes and responses to external themes Investment sovereigns do not have any liabilities, Economic challenges affect sovereigns differently, allowing for long time horizons and high exposure to according to their liabilities, risk appetites, funding illiquid asset classes. Due to this investment freedom, dynamics and other factors. We use the framework return targets are high - investment sovereigns have in figure 1 to categorise sovereign investors. We will responded to falling returns by targeting greater explore the unique implications of the themes in illiquid asset exposure (to generate higher returns) this report for each of these segments. and developing internal management capability (to capture more of the value chain), however many funds are reaching limits on these allocations. Liability sovereigns Liability sovereigns are split into funds with existing outflows (current liability sovereigns) and funds with future liabilities (partial liability sovereigns). While partial liability sovereigns have similar strategies to investment sovereigns (due to their long time horizons), matching outflows is a key concern for funds with current liabilities. The return gap is therefore of particular significance to liability sovereigns and many funds expect their target rates to eventually increase as they update models to lower ‘risk free’ rates and increasing life expectancy. To manage these concerns, many current liability sovereigns are seeking greater exposure to high- yielding asset classes. Fig 1. Sovereign profile segmentation Primary objective Investment only Investment & liability Global sovereign profile Investment sovereigns Liability sovereigns (INV) (LIA) Sovereign investors A TT ‘Central banks have secondary liquidity objectives as well as primary capital preservation objectives. They are distinct from sovereigns through their role in local market money supply and their regulator