Sovereign Asset Management in 2025: Key Insights from Invesco’s Global Study

Inside Invesco’s Global Sovereign Asset Management Study

Sovereign asset management stands at a critical inflection point. The institutions entrusted with managing nations’ wealth are navigating an investment landscape fundamentally reshaped by geopolitical fragmentation, technological disruption, and shifting monetary regimes. The 2025 Invesco Global Sovereign Asset Management Study — now in its thirteenth year — provides the most comprehensive window into how these powerful investors are adapting their strategies.

The study draws on in-depth interviews with 141 senior investment professionals, including chief investment officers, heads of asset classes, and portfolio strategists from 83 sovereign wealth funds (SWFs) and 58 central banks. Collectively, these institutions manage approximately US$27 trillion in assets, representing the largest pool of long-term capital in global finance. Fieldwork was conducted by NMG Consulting between January and March 2025, with respondents spanning North America, Europe, the Middle East, Latin America, Africa, and Asia-Pacific.

What makes this year’s findings particularly significant is the convergence of several structural shifts. The return of protectionism under the second Trump presidency, renewed interest in Chinese markets after years of caution, the mainstreaming of private credit, and the gradual — if still tentative — embrace of digital assets are all reshaping how sovereign institutions think about portfolio construction and risk management. This article distills the study’s most consequential findings into actionable insights for institutional investors, policymakers, and anyone tracking the flow of sovereign capital.

Sovereign Wealth Fund Performance: Record Returns in 2024

The 2024 vintage proved exceptionally rewarding for sovereign asset management portfolios. Across all fund types (excluding central banks), sovereign wealth funds delivered an average return of 9.4% — the second-highest figure recorded since Invesco began tracking performance. Investment sovereigns led the pack with an impressive 11.2% return, followed by development sovereigns at 10.5%, liability sovereigns at 8.6%, and liquidity sovereigns at 7.5%.

To appreciate this performance in context, consider the trajectory since 2020. Returns have oscillated dramatically: 7.3% in 2020, a post-pandemic surge to 10.0% in 2021, a sharp correction to -3.5% in 2022 (the worst year in the series), a recovery to 7.2% in 2023, and now the 9.4% in 2024. This volatility underscores a central theme of the study: sovereign investors are operating in an environment where traditional assumptions about market stability no longer hold.

The strong 2024 performance was driven primarily by equity market strength, with global equities comprising 32% of average sovereign portfolios. However, the outperformance of investment sovereigns — which maintain higher allocations to alternatives and direct strategic investments — suggests that diversification beyond traditional asset classes is generating tangible alpha. As one Middle Eastern SWF respondent noted, the traditional bond-equity diversification model showed its limitations during the 2022 simultaneous decline, prompting a fundamental rethink of portfolio architecture.

How Sovereign Funds Are Recalibrating Asset Allocation

The asset allocation landscape for sovereign asset management has shifted meaningfully since 2021. The most striking trend is the dramatic reduction in cash holdings — from 9% of AUM in 2021 to just 3% in 2025 — as funds deploy capital into higher-yielding opportunities. Equities have stabilised at 32%, fixed income has held steady around 29%, and illiquid alternatives have climbed to 23%.

Within alternatives, the standout story is infrastructure’s ascent. Infrastructure allocations have more than doubled from 3.7% of AUM in 2021 to 8.1% in 2025, making it the single largest alternative allocation and overtaking both real estate (which has declined from 8.3% to 7.3%) and private equity (relatively flat at 7.1%). The net allocation intention score for infrastructure stands at +21, the highest of any asset class among SWFs.

This infrastructure pivot reflects several converging forces. The global energy transition requires trillions in new investment. Sovereign funds, with their long time horizons and tolerance for illiquidity, are natural capital providers for renewable energy, digital infrastructure, and transportation networks. Additionally, infrastructure assets offer inflation protection through regulated or contracted revenue streams — a crucial attribute in an era where 85% of respondents agree that increased trade protectionism will sustain higher inflation in developed markets.

Fixed income, meanwhile, is experiencing a renaissance of sorts. With a net intention score of +24, it ranks as the most-favored asset class by allocation direction. However, the composition of fixed income portfolios is evolving. Sovereign funds are reducing exposure to longer-maturity US government debt and exploring diversified credit strategies that offer yield enhancement without excessive duration risk.

Private Credit Surge in Sovereign Asset Management

Perhaps no asset class better illustrates the evolution of sovereign asset management than private credit. Adoption has reached a tipping point: 73% of sovereign wealth funds now invest in private credit, up from 65% just one year ago. More tellingly, 50% are actively increasing their allocations, while only 1% are reducing exposure.

The access mechanisms reveal growing sophistication. Fund-based investments remain dominant at 63% (up from 56% in 2024), but direct investments and co-investments have surged to 44% (up from 30% in 2024). This shift toward direct deployment reflects sovereign funds’ desire to capture the full illiquidity premium while maintaining greater control over credit selection and structuring.

Regional dynamics are striking. North American sovereign funds are the most aggressive, with 42% planning significant increases in private credit allocation. African funds show notable momentum, with 56% planning increases. European funds are more measured, with 38% planning moderate increases and 57% holding steady. As one Middle Eastern SWF put it: “Private credit plays to our strategic advantages of patient capital.”

The gravitational pull toward private credit reflects a broader reassessment of risk-adjusted returns across asset classes. Another Middle Eastern respondent captured this sentiment: “The credit spectrum currently offers more attractive risk-adjusted returns than public equity markets.” With approximately 60% of sovereign institutions now using formalised liquidity frameworks, the move into less liquid credit markets is being executed with appropriate governance infrastructure.

Geopolitical Risk Reshaping Sovereign Asset Management

Geopolitical risk has become the dominant consideration in sovereign asset management strategy. An overwhelming 88% of respondents cite geopolitical tensions hampering trade and growth as a near-term concern — up from 83% in 2024. But the most dramatic shift is in market volatility perceptions: concern about excessive financial market volatility surged from 28% to 59%, reflecting the turbulence introduced by escalating trade wars and policy uncertainty.

The second Trump presidency has forced material portfolio adjustments. Among central banks, 67% report significant or moderate changes to their portfolios in response, while 55% of SWFs have made similar adjustments. Specific actions include reducing allocations to longer-maturity US government debt, critically re-evaluating passive index strategies with concentrated US equity exposure, and strategic shifts away from US-based financial counterparties toward European alternatives.

Looking further ahead, 89% of respondents agree that geopolitical rivalry between major powers will be a major driver of market volatility. Long-term risk perceptions have also evolved: concern about high sovereign and private debt levels jumped from 39% to 57% — the largest year-over-year increase in any risk category. This reflects growing anxiety about fiscal sustainability in an era of rising defence spending, energy transition costs, and persistent deficits.

The interest rate outlook remains anchored in the mid-single digits, with 74% of respondents expecting rates to settle there — slightly up from 71% in 2024. Views on Federal Reserve policy under Trump are notably split: among SWFs, opinions divide almost equally between more hawkish (32%), no change (34%), and more dovish (34%). This uncertainty itself has become a strategic variable, driving demand for flexible allocation frameworks that can adapt quickly to policy shifts.

China Re-emerges as a Sovereign Investment Priority

After several years of cautious distancing, China is staging a remarkable comeback in sovereign asset management portfolios. The proportion of SWFs rating China as a high-priority emerging market jumped from 20% to 28% — the largest increase among all emerging market regions. Over a five-year horizon, 59% of sovereign wealth funds plan to increase their China allocations, with only 2% planning decreases.

Regional variation tells a compelling story. Latin American funds are the most bullish, with 100% planning increases. APAC funds follow at 88%, Africa at 80%, North America at 73%, and the Middle East at 60%. European funds are the most cautious, with only 13% planning increases and 87% maintaining current levels — likely reflecting greater sensitivity to geopolitical tensions between the EU and China.

The drivers behind this China re-engagement are primarily financial. Attractive local returns top the list at 71%, followed by diversification benefits (63%) and increasing market access (45%). Political diversification — the desire to reduce dependence on Western markets — is cited by 29%, reflecting the broader fragmentation theme.

Sector preferences reveal where sovereign funds see China’s competitive advantages. Digital technology and software leads overwhelmingly at 89%, followed by advanced manufacturing and automation (70%) and clean energy and green technology (70%). Healthcare and biotech attract 48% interest. As one Middle Eastern SWF observed: “There is no real competitor to China in clean energy and green technology. China will dominate solar, wind, EV, and battery markets for decades.”

However, risks are acknowledged openly. 59% cite local government debt as a serious threat, 53% flag property sector risks, and 48% worry about aging demographics reducing growth. The balance of optimism and caution suggests sovereign funds are approaching China with sophisticated, sector-specific strategies rather than broad market bets — predominantly through public equities (64%) and private market investments (49%).

Digital Assets and Sovereign Wealth Fund Adoption

Digital assets remain the most polarising topic in sovereign asset management. The share of SWFs with direct digital asset investments has grown modestly from 7% in 2022 to 11% in 2025. Another 50% say they may invest in the future, while 39% maintain they will never invest — a proportion that has barely changed since 2022, suggesting deeply entrenched institutional views on both sides.

Regional adoption patterns are revealing. African sovereign funds lead with 43% already invested, followed by Latin America at 40%, Europe at 38%, the Middle East at 22%, APAC at 18%, and North America at 16%. The higher adoption rates in emerging market regions may reflect both a greater appetite for high-growth assets and fewer legacy allocation constraints.

Among those invested or considering investment, the primary use case is as a high risk/return asset (59%), followed by store of value (46%) and a call option on underlying technology (35%). Inflation hedging attracts 32% interest. Barriers remain substantial: regulatory pressure (76%) and volatility (74%) top the list, followed by transparency concerns (65%) and due diligence hurdles (48%).

The Trump presidency is seen as potentially catalytic: 46% of SWFs believe it will alleviate regulatory barriers to digital asset investment. Among investable assets, cryptocurrencies (Bitcoin, Ethereum) dominate at 76%, with stablecoins attracting 48% interest. Tokenised securities, often touted as the institutional-grade entry point, garner only 17% interest — suggesting sovereign funds prefer direct crypto exposure to tokenised traditional assets.

Central banks, meanwhile, are deeply engaged with the infrastructure layer. 63% are researching CBDCs, 20% are actively considering launch, and 4% have already launched digital currencies. The primary motivation is payment system efficiency (88%), followed by faster cross-border payments (60%). Only 7% of central banks believe cryptocurrencies have a relevant role in diversified portfolios, highlighting the stark divide between central bank conservatism and SWF experimentalism.

Active Management Gains Ground in Sovereign Portfolios

The trend toward active management represents a structural shift in sovereign asset management philosophy. In emerging markets — where sovereign funds have significant exposure — only 9% report significant use of passive strategies, while 51% have no passive EM exposure whatsoever. This preference for active management reflects both the inefficiencies in emerging markets and the desire for hands-on risk management in volatile environments.

The broader move toward active management is driven by the recognition that passive index strategies carry hidden concentration risks. Several respondents noted that the heavy US weighting in global equity indices — particularly the dominance of mega-cap technology stocks — creates uncomfortable single-country and single-sector exposures. The re-evaluation of passive strategies is particularly acute in the context of the Trump presidency, where policy unpredictability makes broad market exposure less appealing than targeted, research-driven positioning.

For emerging market investments specifically, 55% of SWFs rely mainly on external managers, 30% use a mixed approach of direct and managed investments, and 15% invest primarily directly. This distribution suggests that while sovereign funds value the expertise external managers bring to complex markets, a growing minority are building internal capabilities to reduce costs and increase control over their investment decision-making processes.

Central Bank Reserve Strategies Under Uncertainty

Central banks face a distinct set of challenges within the sovereign asset management universe. Their reserve management strategies must balance safety, liquidity, and return — with safety and liquidity typically taking precedence. Yet the 2025 study reveals meaningful evolution in how central banks approach these traditional constraints.

The most significant finding is the impact of geopolitical considerations on reserve management. Central banks have been more responsive than SWFs to the Trump presidency: 67% report significant or moderate portfolio changes, compared to 55% of SWFs. This higher sensitivity reflects the direct implications of trade policy and sanctions risk for reserve assets, particularly US dollar-denominated holdings.

Interest rate expectations among central banks mirror the broader sample, with the majority expecting mid-single-digit rates to persist. However, 50% of central banks expect Federal Reserve policy to become more dovish under Trump — a notably higher proportion than among SWFs (34%). This divergence may reflect central banks’ closer attention to monetary policy dynamics and their assessment that political pressure will ultimately push the Fed toward accommodation.

On digital currencies, central banks are simultaneously cautious about crypto adoption and proactive about CBDC development. The contrast is stark: while only 7% see cryptocurrencies as relevant for portfolios, 87% are either researching, considering, or have already launched CBDCs. This suggests central banks view digital currency primarily as a monetary policy and payments tool rather than an investment opportunity — a position that could evolve as the digital asset ecosystem matures and regulatory frameworks solidify.

The Future of Sovereign Asset Management

The 2025 Invesco study paints a picture of sovereign asset management at a crossroads. The institutions managing $27 trillion in national wealth are simultaneously grappling with unprecedented geopolitical complexity, seizing opportunities in emerging asset classes, and fundamentally rethinking portfolio construction frameworks that served them well for decades but showed cracks in the post-2022 environment.

Several trends appear durable. The infrastructure allocation boom is backed by real-world capital needs in energy transition, digitalisation, and urbanisation that will persist regardless of political cycles. Private credit’s mainstreaming reflects a structural shift in how businesses are financed, with banks retreating from areas where sovereign funds’ patient capital provides a natural competitive advantage. And the China re-engagement — despite its risks — reflects a pragmatic recognition that the world’s second-largest economy cannot be excluded from globally diversified portfolios.

More uncertain is the trajectory of digital assets in sovereign portfolios. The current 11% adoption rate among SWFs may seem modest, but the 50% expressing openness to future investment represents a massive pool of potential capital. Regulatory clarity — whether from the Trump administration or other jurisdictions — could rapidly accelerate institutional adoption. Similarly, the CBDC development wave among central banks could create infrastructure that makes digital asset management more accessible and palatable for conservative institutional investors.

Perhaps most importantly, the study reveals a fundamental philosophical shift in sovereign asset management: from passive, benchmark-driven approaches toward active, conviction-based strategies that account for geopolitical risk as a primary variable rather than an afterthought. With 89% of respondents expecting great-power rivalry to drive market volatility, and 62% viewing deglobalisation as a threat to investment returns, the sovereign funds that thrive will be those with the analytical capabilities, governance structures, and strategic flexibility to navigate a fragmented world. For investors of all sizes, the strategic direction of these $27 trillion stewards offers a powerful signal of where global capital is heading — and the opportunities and risks that lie ahead.