Shifting demographics, the rise of technology and increasing focus on sustainability are key trends that sovereign wealth funds should incorporate in their investment frameworks, according to a new report.
The report said ageing could result in a redistribution of wealth across generations and change consumption patterns, creating the need for new products and services.
This would need new investment in infrastructure, the healthcare and wellness industries, and housing.
The report also said shifting demographics will impact other key economic variables.
Academic research, for example, suggests that equity values in the United States correlate with demographic trends. As baby boomers age, they will likely move from investing in equities to selling equities to fund their retirement.
"All else being equal, this would exert pressure on equity multiples," said the report by UBS bank and Swiss business university IMD.
Technology was also highlighted as a key area of consideration because of its disruptive nature.
Sovereign wealth funds must be able to quickly spot disruptors and the disrupted, as this can provide opportunities for extra returns or avoid permanent losses, the report added.
Companies and whole industries can also be put at risk by non-competitive dynamics coming from challenges outside the market, for example, from the area of cybercrime.
Climate change will likely be an important driver of sustainable strategies for companies, which may have different effects across economies and sectors, and therefore across asset returns. Commodity-based sovereign wealth funds are the most exposed investors as their source of wealth is oil, which is being disrupted by climate change.
"We believe that diversifying climate change risk in the assets that they invest in global markets should become a key driver of their investment strategy in the future. But all investors should incorporate climate change in their investment framework," said the report.