US-headquartered investment manager Invesco has just released its “Sovereign Investors’ Snapshot Survey” of sovereign wealth fund and central banks, which collectively manage over $1 trillion in assets. It shows how they are responding to increased geopolitical uncertainty and the changes they are making to their strategic asset allocation.   

Despite increasing uncertainty in trade and geopolitics, sovereign investors remain optimistic about opportunities in the US and China; consequently, they are shifting their strategic allocation within fixed income in 2025, with a rise in private credit, according to a new survey by Invesco.

As a precursor to the Invesco Global Sovereign Asset Management Study 2025, which will be published in the summer of 2025, Invesco conducted a pulse survey of a small group of sovereign investors with total assets under management of $1 trillion.

In these conversations, the uncertain macro environment of the White House policy agenda and trade and tariff issues have become a growing concern among sovereign wealth funds and central banks, despite their continuing favour of US markets. The survey also found that these institutions were increasing allocations to fixed income and private credit as well as balancing the economic challenges and opportunities being presented by China. 

Sovereign investors are seeing a growing divergence between the US and Europe, according to the survey. While the growth story for the US continues and the new administration’s business-friendly policies and reduced red tape are seen as attractive to foreign investors, Europe faces structural headwinds. As a result, investment flows from sovereign investors who continue to favour the US market. This is partially due to the manufacturing weakness in Europe â€“ seen as particularly acute and showing little sign of recovery, the firm said.

However, sovereign investors still have concerns over the impact of tariffs inflicted by the US on inflation and therefore interest rates. They are also concerned about the growing trade tensions which have expanded beyond the US and China to Mexico and Canada; these trade tensions are new, so the impact is seen as more uncertain.

Despite sovereign investors anticipating higher levels of volatility on the back of this, they anticipate that there could also be benefits. As long-term investors, they can ride out short-term volatility and seize on dislocation opportunities.

China
Sovereign investors see a number of economic transitional challenges for China, such as relatively weak confidence in the private sector and regulatory risks.

Despite these challenges, sovereign investors are seeing pockets of positivity, for example China’s leading position in sectors such as electric vehicles, batteries and AI and its manufacturing competitiveness. As a result, some sovereign investors are reporting increased confidence in China’s long-term direction and are reassessing the “China discount” as valuations become more attractive and are building long-term strategic positions, especially in private markets, the firm continued. 

Fixed Income 
Sovereign investors are adjusting their fixed income allocations, the firm said. The increase in these allocations is fuelled by yield opportunities and the growth of the private credit market. Private credit is transitioning from a more tactical move to a key component of portfolios, with growing sovereign private credit allocations helping to fill the gap left by banks retreating from lending in certain markets, due to a combination of regulatory pressures and change in strategy, the survey reveals.

Within this, infrastructure debt is emerging as a key area, especially for the liability-driven sovereign investors, as it provides both yield and inflation protection characteristics. AI-related infrastructure investments such as data centres, are seen as a significant growth opportunity within the infrastructure debt space, allowing sovereign investors to gain additional exposure to this fast-growing space that has a substantial continuous need for capital.

Due to private credit’s growing importance, the survey found that some sovereign investors were building specialised in-house lending teams to source and structure deals, reducing their reliance on external managers.

As private markets allocations by sovereign investors increases, liquidity management is also becoming more important, the firm said. Higher allocations to illiquid investments requires more sophisticated strategies to ensure that funds can meet obligations while maintaining sufficient flexibility to capture new opportunities in volatile markets.

At the same time, the traditional hedging role of fixed income is being seen as less reliable, forcing funds to find new portfolio protection strategies, the survey shows. The changing correlation between bonds and equities is seen as diminishing fixed income's effectiveness as a portfolio stabiliser. Sovereign investors are therefore increasingly exploring derivative-based strategies and alternative risk premia approaches to achieve more reliable downside protection in a volatile interest rate environment, the firm continued.

“Sovereign investors are navigating an increasingly complex geopolitical environment. The challenges of strategic asset allocation are underscored by high-tempo policy shifts and tensions over trade and tariffs,” Rod Ringrow, head of official institutions, Invesco said. “However, they are finding opportunities within China’s advancement in strategic areas and as long-term investors, enabling them to ride out the short-term volatility anticipated from the US,” he added.  “Additionally, the role of fixed income is evolving within their portfolios. Allocations previously considered niche, such as real estate debt, private credit, and infrastructure debt, are now becoming core allocations due to their ability to provide both yield and long-term strategic benefits.”