Risk Resurgence: Sovereign and Public Funds Tackle Geopolitical Tensions and Market Uncertainties

Risk is back in the spotlight for sovereign and public funds, as geopolitical tensions and market uncertainties have led to a shift in their investment strategies. In a recent survey, 62% of respondents cited geopolitical risks as a major concern, up from 44% last year. Economic uncertainty, particularly in the aftermath of the COVID-19 pandemic, is another significant worry, with 58% of respondents expressing unease. Cybersecurity threats have also surged, with 54% viewing them as a major risk factor.

As these funds navigate the complex economic landscape, they are increasingly adopting a risk-on approach. In response to the low-yield environment, 42% of sovereign and public funds plan to increase their allocation to alternative assets such as private equity and infrastructure, up from 30% in 2020. This shift reflects a desire to diversify portfolios and generate higher returns, but it also raises concerns about potential vulnerabilities. These funds may be exposed to less transparent and more volatile asset classes, which could exacerbate risks.

To mitigate these risks, funds are reallocating their portfolios and forging strategic partnerships. The Norwegian Oil Fund, for instance, has increased its allocation to unlisted real estate, infrastructure, and renewable energy, aiming to generate higher returns and diversify its portfolio. Similarly, the Abu Dhabi Investment Authority (ADIA) has been actively investing in private equity and venture capital, targeting high-growth sectors like technology and healthcare.

In the energy sector, sovereign wealth funds (SWFs) are investing in upstream and midstream projects, seeking to secure long-term energy supplies and generate stable returns. The Qatar Investment Authority (QIA) has been involved in LNG projects, while the Kuwait Investment Authority (KIA) has invested in oil refineries. Strategic partnerships are another key risk management strategy for SWFs. The Saudi Arabian Monetary Authority's (SAMA) Public Investment Fund (PIF) has partnered with SoftBank to create the $100 billion Vision Fund, investing in technology and growth-stage companies.

As these funds embrace risk, they are also implementing robust risk management frameworks to mitigate potential downside. This includes enhancing counterparty risk management, stress-testing portfolios, and investing in data analytics and risk management technology. By embracing a more nuanced approach to risk, these funds are positioning themselves to generate higher returns while safeguarding their investments.


As the global economic environment remains uncertain, sovereign and public funds must continue to adapt their investment strategies to mitigate risks and capitalize on opportunities. Embracing a balanced approach that combines growth and stability, these funds can effectively manage risks and achieve long-term growth.