The Current Relationship Status of Asset Owners and Bankers

Michael Maduell, President of the Sovereign Wealth Fund Institute

Michael Maduell, President of the Sovereign Wealth Fund Institute

Headline after headline, asset owners such as OMERS and Temasek Holdings are displacing private equity firms, taking majority positions in companies and real estate assets. Our Sovereign Wealth Fund Transaction Database shows a mounting upward trend from 2005 onward of public institutional investors going direct. 2015 has been a bumper year for direct investing.

On the scale of asset owner buying power, wealth funds and Canadian pensions will be hard to top this year. Looking deeper into the deal process, asset owners like CPPIB, Abu Dhabi Investment Authority and China Investment Corporation are gradually relying less on investment bankers. Often times, these institutional giants share investment ideas through informal networks and strategic alliances. Many wealth funds and pensions attend our conferences to share notes with peers and meet directly with asset managers. Furthermore, wealth funds and mega pensions tap ideas from the private equity community – typically asset owners agree to commit substantial sums of money to get in on “unique” deals from return generators like KKR, Ares Capital and the Blackstone’s of the world.

Many wealth funds and pensions attend our conferences to share notes with peers and meet directly with asset managers.

Under Pressure

Investment bankers, are still incredibly relevant in deal opportunities from the corporate side of the table, but they no longer hold most of the cards in sourcing potential investments. What has complicated the job of bankers is their market position. Globally, investment banking units are under pressure. European investment banks have suffered more compared to their U.S. colleagues. The Eurozone has proven to be dangerous ground as Credit Suisse and Deutsche Bank continue to make drastic cuts in headcount in various departments.

Once key profit centers, many banking units have returned lower profits and even worse, increased regulatory scrutiny for the parent company. Banks like Barclays, UBS and Deutsche Bank have had their reputations further damaged by the foreign exchange manipulation scandals.

Goldman Sachs

This issue of the Sovereign Wealth Quarterly hones in on Goldman Sachs – an investment bank that has dodged many scandals (besides the major one with Libyan Investment Authority) and has generated substantial profit figures in banking the last few quarters. In April, the bank’s IB division posted net revenue of US$ 1.9 billion – its best quarterly result since 2007.

Goldman Sachs, which has access to many U.S. and European technology companies, has been kicking deal opportunities over to sovereign funds. For example, an Abu Dhabi sovereign wealth fund ended up investing in music streaming service Spotify. Spotify had hired Goldman Sachs to find institutional investors in a huge fundraising round to help the company face off against Apple. Apple recently launched a music streaming service – Apple Music.

Sovereign wealth funds and pensions hold the keys to the vault; however, the need for advisers whether crafty investment bankers or savvy consultants will remain necessary for the time being.

The views in this article are expressed by Michael Maduell.
Michael Maduell is President of the Sovereign Wealth Fund Institute.

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