Sovereign wealth funds were once referred to as white knights when it came to them bailing out a number of global investment banks such as Citigroup, Merrill Lynch and UBS during the financial calamity of 2007. Sorry West – their desires have changed.
To this day, wealth funds continue to amass tremendous financial firepower in the trillions, despite headwinds such as the oil glut, heightened geopolitical tensions, slowdown of global consumer demand and the possible rise of new protectionism. In 2014, sovereign wealth funds directly invested US$ 33.4 billion into the financial sector, according to data from SWFI’s Sovereign Wealth Fund Transaction Database. In 2015, the sovereign fund transaction figure toward financials dramatically fell to just US$ 18.76 billion. There has been a clear shift in what sovereign wealth funds want and are willing to invest millions into. With greater inclination, wealth funds have pulled allocation away from traditional Western banks and more toward emerging financial institutions in Asia, cascading down from China into Vietnam. In late August, Singapore’s GIC bought a 7.73% stake in Vietcombank through newly-issued securities. GIC joined the ranks of institutional owners in the large Vietnamese bank, sitting alongside Mizuho Corporate Bank. Though GIC encountered trouble reworking and making changes in its Western bank portfolio holdings, the wealth fund, along with Temasek Holdings, has had success in creating banking franchises and lending operations throughout China and India.
Sovereign funds have veered toward direct deals into technology-driven consumer companies such as SnapDeal and Uber Technologies.
Plagued with low interest rates and a drop in investment banking profits, many Western banks have become unpalatable for wealth funds. Sovereign investors such as the Korea Investment Corporation (KIC) still feel the reeling of its holding in Bank of America, while the GIC is still exposed to its bailout of UBS. During the global financial crisis chaos, GIC’s capital infusion in UBS was far bigger than Abu Dhabi Investment Authority’s capital commitment of US$ 7.5 billion in Citigroup. In 2011, UBS announced it was embroiled in a rogue trader scandal performed by Kweku Adoboli. Soon after, Oswald Grübel, the CEO of UBS at the time, resigned. Furthermore, banks such as these; Barclays, Credit Suisse and UBS have been pelted by fines and penalties, thus affecting their valuations, while being brought under the ire of global financial regulation. In addition, banks tied to the success of commodity-driven economies have suffered – Temasek’s investment in Standard Chartered. Temasek took a financial blow recently in its investment portfolio, helplessly watching the value of Standard Chartered tumble amid bad loans in emerging markets. With all this being said, wealth funds are desperately seeking avenues to hedge their bets by betting on information technology. In fact, investing in financial technology startups, typically requires far less capital compared to major bank bailouts.
Largest Institutional Owners of UBS
|Largest Shareholders||Jun 30, 2016||Dec 31, 2015||Dec 31, 2014|
|Chase Nominees Ltd, London||9.12%||9.14%||9.05%|
|GIC Private Limited||6.38%||6.38%||6.61%|
|The Depository Trust Company (Cede & Co.), New York||6.15%||6.14%||5.76%|
|Nortrust Nominees Ltd, London||3.52%||3.60%||3.52%|
GIC’s holding may be higher. Source: UBS
The Asian wealth funds are not the only institutional investors making moves out of traditional banking. A number of Gulf wealth funds have bought into the reinsurance story, backing vehicles with industry players. Even Canadian pension funds are feeding billions into reinsurance fund strategies and companies. In March 2014, the Canada Pension Plan Investment Board (CPPIB), in a buy and build strategy, acquired Bermuda-based Wilton Re Holding Limited for a total cash consideration of US$ 1.8 billion.
Migrating Capital Toward Technology-Driven Consumer Services
Sovereign funds have veered toward direct deals into technology-driven consumer companies such as SnapDeal and Uber Technologies. Yes, there are some mega tech deals such as Saudi Arabia’s Public Investment Fund’s legendary US$ 3.5 billion cash infusion into taxi-app Uber. However, the clear majority of tech venture deals require very little capital from the wealth fund. GIC can even put a feather in its cap for investing in SnapChat. The Alaska Permanent Fund Corporation has exposure to SnapChat through a fund it invested into. In 2015, wealth funds directly invested US$ 7.11 billion into information technology. For the first half of 2016, wealth fund direct transactions amount to US$ 6.75 billion (this figure may be higher as some transactions are still being tabulated). Another deal to highlight is Khazanah Nasional’s investment in the Series D round of Singapore-based Garena Interactive Holding Ltd., a mobile entertainment and e-commerce company, which occurred in May 2016. Then on September 5th, Garena announced it raised more money, these investors include SeaTown Holdings International, a sovereign wealth enterprise (SWE) of Temasek. Indonesia-based Global Digital Prima, backed by Martin Hartono, and Mistletoe Inc., a fund managed by Taizo Son, also invested in the September round. SeaTown Holdings’ Archana Parekh is joining Garena’s advisory board. Garena was founded in 2009 by China native Forrest Li. Garena is putting financial resources into payments and social commerce, looking to compete with Facebook and Alibaba.
The shift in strategy is clear. Sovereign wealth funds certainly won’t be the first ones in line to bail out Western banks in a future global financial crisis.
The Russian Far East has a lot of timber, and for that wood pellets is a source of biofuel. A while back, the Russian Direct Investment Fund (RDIF) formed the Russia-Japan Investment Fund (RJIF) with the Japan Bank for International Cooperation (JBIC). RDIF and JBICIG Partners as part of RJIF, together with RFP Group and Japan’s Prospect Co., Ltd. have agreed to collaborate and consider potential investments in Russia’s biofuel industry. JBICIG Partners is a subsidiary of the Japan Bank for International Cooperation.
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The Russian Direct Investment Fund (RDIF) is partnering with a number of unnamed Asian co-investors to allocate capital toward a project to create and manufacture Russian surgical robots. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Oman State General Reserve Fund is nearing the formation of the Oman Infrastructure Investment Fund. This fund will raise capital from third-party investors to invest in Oman’s infrastructure and in certain areas of technology.
The fund will also invest in areas of technology in healthcare, specifically in medical equipment. The fund will also explore investing in blockchain technologies.
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