Australia Bests India and China for Sovereign Wealth Fund and Pension Foreign Direct Investments

Posted on 12/21/2021

For much of the past year, global asset owners have guided their investment behavior on analyzing trends spurred by the COVID-19 pandemic, the lockdowns, and central bank policies. Which countries are vulnerable to shocks and geopolitical risks in the short to medium term? How can sovereign funds protect wealth from inflation?

Country vulnerability is at the core of how some asset allocators think. For a growing number of sovereign funds and public pension funds, they have embraced a safe space in Australia, particularly in real estate and infrastructure. SWFI calculated US$ 15.24 billion of cross-border direct sovereign wealth and public pension fund investment went into Australia in 2021 vs. US$ 5.8 billion in 2020. This Australian investment figure beats out China and India for 2021. Real estate and infrastructure in markets where private property rights are resilient has attracted global swfs. Inflation has remained high across most economies. Sovereign funds are trying to find assets that can protect their cash flows – even more so in an inflationary environment. Asset owners expect inflation to remain elevated across developed markets as the forces of demand and supply take some time to stabilize. India and China are still major markets for direct sovereign wealth fund investment; Australia has less geopolitical stressors than China and clearer rule of law than India.

In late 2021, AustralianSuper sold down a 16.8% stake in Ausgrid to Dutch pensions manager APG Asset Management for more than A$ 2 billion. Abu Dhabi Investment Authority (ADIA) became an investor in land near the Sydney Kingsford Smith Airport, Port Botany, WestConnex and the M5/M8 Motorway.

On the public pension side, Canadian public pensions and the Dutch pensions have been active in Australia for well over a decade. Just in 2021, Caisse de depot et placement du Quebec invested in Moorebank Logistics Park, while Ontario Teachers’ Pension Plan invested in Greenstone Pty Ltd. Spark Infrastructure Group is an Australian investment fund which owns and manages a portfolio of electricity infrastructure assets. In August 2021, Spark Infrastructure agreed to be acquired for A$ 5.2 billion by private equity firm KKR & Co., Ontario Teachers’ Pension Plan Board, and PSP Investments.

In 2020, Ontario Municipal Employees’ Retirement System (OMERS) acquired a 19.9% stake in Australian energy company Transgrid from Wren House, a subsidiary of the Kuwait Investment Authority.

Foreign Direct Investments by Sovereign Wealth Funds and Public Pensions in Australia, China, and India

Filter: BuyerTypes: Sovereign Wealth Fund, Public Pensions. Exclude fund commitments. Billions USD. Only cross-border investments. Access the data on (Global Asset Owner Terminal).

Note: In this brief analysis, SWFI excludes fund commitments and only counts cross-border investments to see how foreign public institutional capital feel about moving capital between China and India. Direct investments can be perceived as a stronger confidence signal in overseas investing versus allocating capital to an external fund manager. Furthermore, in this analysis, SWFI grouped China with Hong Kong as political barriers between the two have weakened, while many Chinese companies use Hong Kong as a financial center to raise foreign capital.

The World Bank thinks that demographic and productivity challenges that came about a decade ago in China are likely to slow gross domestic product (GDP) growth to 3.5% in the 2040s. China shifted from Western-style capitalistic growth of the 2010s to a more controlled mode of deleveraging and de-risking certain markets. The news of slower growth has not really stopped the influx of foreign state investors in China. For example, Saudi Arabia’s Public Investment Fund (PIF) binged on some Chinese equities such as BeiGene, Ltd., Alibaba Group Holding Limited, and Pinduoduo Inc. This is while some Canadian public pension funds sold off some Chinese equity positions.

India remains a vibrant country for sovereign fund capital. SWFI data suggests that sovereign funds, family offices, and pensions are keen on Indian startups that are able to operate and gain market share quickly.

Keywords: Ontario Teachers Pension Plan, Ontario Municipal Employees Retirement System.

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