Investors have a sense that financial markets are completely rigged and there is a hierarchy from retail to the big money that favors the largest investors over the smaller. They’re right.
The biggest investors have better information, earlier warning and the first chance to get in or get out ahead of the crowd. There’s retail, then high-net-worth, then institutions, banks, and central banks. At the top of the pyramid of power are the sovereign wealth funds.
Sovereign wealth funds are set up by governments to invest their hard currency reserves. Traditionally, national reserves are managed by central banks or finance ministries in short-term liquid instruments such as U.S. Treasury bills or high-quality bank deposits. In the past thirty years, countries have allocated part of their reserves to sovereign wealth funds that have a mandate to increase returns by investing in less liquid positions such as private equity, hedge funds, commodities, and natural resources.
The sovereign wealth funds are the largest investors in the world. The assets of the Norway and Abu Dhabi sovereign wealth funds exceed $1 trillion. Several others, such as the China Investment Corporation and Kuwait Investment Authority, exceed $500 billion.
Sovereign wealth funds are truly the “big money” with the best information and the ability to reposition ahead of the curve. What are they doing now?
According to this article, the sovereign wealth funds are sounding the alarm, reducing equity exposures and increasing their allocations to cash. Here’s a chance for the retail investor to keep up with the big money by doing the same thing – reduce your exposure to equities and increase your allocation to cash.
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