Inflation Proofing:
Sovereign Wealth Funds Buy Tangible Assets
IFSWF Annual Review 2023

Sovereign wealth funds are gearing up for a sustained period of higher inflation, which has surged from historically low levels since the COVID-19 pandemic and the start of the conflict in Ukraine.

Inflationary pressures are being fuelled by reflationary fiscal and monetary policies, national industrial strategies aimed at reshaping supply chains, and extensive public investment to tackle climate change through mitigation and adaptation efforts. Some of these policies are set to persist, exacerbating inflation and eroding the purchasing power of assets and returns over the long term.

This environment poses significant risks to investors. As highlighted in a 2024 IFSWF webinar by strategists from Australia’s Future Fund, Abu Dhabi's Mubadala Investment Company, and Singapore’s GIC, higher and more volatile inflation complicates the investment landscape. This environment introduces greater uncertainty regarding the future trajectory of consumer prices, company input costs, and the interest rates set by central banks to rein in inflation.

Navigating this inflationary environment presents formidable challenges for investors in achieving their target returns. Sovereign wealth funds have adjusted their capital allocation strategies for direct investments in the following ways: