A Key Argument Against Sovereign Funds Spending More is Evaporating

Source: Sovereign Wealth Fund Transaction Database

Source: Sovereign Wealth Fund Transaction Database

According to the Sovereign Wealth Fund Transaction Database (SWFTD), which tracks direct sovereign fund and pension transactions, wealth funds in the first half of 2015 invested more capital compared to the first half of 2014. In the initial six months of 2015, sovereign funds invested directly US$ 63.4 billion versus 2014’s comparable period figure of US$ 51.9 billion. In the first half of 2013, these institutional investors directly invested US$ 44.6 billion. Clearly, this shows sovereign funds investing larger amounts of capital directly, despite global low oil prices, a slowdown in China’s economy and price weakness in other global commodities. Some wealth fund target sectors have witnessed noticeable growth. Healthcare investing has become a popular theme for sovereign investors. In the first half of 2015, wealth funds invested US$ 3.7 billion directly into the healthcare sector versus 2014’s comparable figure of US$ 591 million directly. The two trending sub-industries in wealth fund healthcare investing are pharmaceuticals and hospitals. In March, Singapore’s GIC Private Limited, bought two large stakes in Rede D’Or São Luiz, Brazil’s biggest independent hospital operator from the Moll Family and investment bank BTG Pactual SA.

For the first half of 2015, sovereign funds allocated over US$ 16.9 billion in direct real estate, compared to US$ 9.8 billion in the first part of 2014 directly – almost a two-fold jump.

Institutional Real Estate’s Major Contribution

As local European investors focus on harvesting profits and rebalancing their property portfolios, wealth funds are gobbling them up. Unlisted real estate allocation is a key contributor of wealth fund direct investment activity. For the first half of 2015, sovereign funds allocated over US$ 16.9 billion in direct real estate, compared to US$ 9.8 billion in the first part of 2014 directly – almost a two-fold jump. Norges Bank Investment Management (NBIM) is a significant property trend contributor. For instance, in March, NBIM partnered with TIAA-CREF in a Washington D.C. office property that was valued at US$ 307 million. NBIM bought a 49.9% stake in the building which touts Google as a key tenant for US$ 60.8 million. The building is a few blocks from the United States Capitol.

Digging deeper, another popular wealth fund investing trend is backing logistics, whether through a company, a portfolio of assets or a warehouse development. In 2015, GIC partnered with Ontario Teachers’ Pension Plan and PSP Investments in providing over a billion to Greenwich, Connecticut-based XPO Logistics, a provider of freight transportation services. Sovereign investors also have an insatiable appetite for developed market infrastructure. In fact, wealth funds have formed subsidiaries to tackle these investments – Kuwait Investment Authority formed Wren Infrastructure and SAFE Investment Company formed Gingko Tree. In the first six months of 2015, Qatar Holding, a sovereign wealth enterprise (SWE) of the Qatar Investment Authority (QIA) invested in HK Electric Investments, getting exposure to Hong Kong’s utility industry. Qatar Holdings has invested in a slew of assets including Vinci, Volkswagen, Credit Suisse and Barclays.



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