Why Sovereign Wealth Funds Need Private Equity
According to the Sovereign Wealth Fund Institute (SWFI), direct sovereign wealth fund transactions from the 3rd Quarter of 2014 back 12 months, totaled US$ 203.61 billion. This is an unprecedented amount of sovereign wealth capital flowing toward direct investing in assets and companies. With that being said, sovereign wealth funds are constantly on the prowl, seeking various channels to manage their money on a risk-adjusted basis. About 15 of the top 25 sovereign wealth funds ranked by assets under management have an allocation to private equity funds. Private equity is an asset class, where sovereign wealth funds are able to put their capital to work on a long-term, illiquid basis. With increased volatility in U.S. equities, a realization of change with regard to U.S. interest rates and lower expected returns in public markets, public asset owners have augmented allocation to private markets.
In a March 2014 article titled, Why Rubenstein Believes SWFs May Become the Biggest Single Capital Source for Private Equity, the SWFI reported that David Rubenstein, co-founder and co-CEO of The Carlyle Group, sees sovereign wealth funds as the biggest single source of capital, replacing U.S. pension funds. The big sovereign funds have their pick with private equity firms with the most robust performance records. Firms like Apollo Management, Blackstone Group and technology specialist players like Vista Equity Partners have had little trouble attracting deep pocketed limited partners. In October, Vista Equity Partners closed US$ 5.77 billion for Vista Equity Partners Fund V.
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