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Mainland China Experiencing Slowdown in Wealth Fund Direct Deals

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With China experiencing a deceleration in economic growth, heightened geopolitical tensions, and rising risks in the country’s traditional financial sector, wealth fund direct investments have slowed down to a crawl in 2016 compared to 2015.

Direct Transactions into Mainland China by Sovereign Wealth Funds – Billions USD

Source: Sovereign Wealth Fund Transaction Database, Extracted February 7, 2017.

Source: Sovereign Wealth Fund Transaction Database, Extracted February 7, 2017.

Even though there is an abundance of institutional investor capital chasing deals globally, the number of suitable opportunities for these large sovereign investors within China shrunk, as well as deal size. This had required both cash-rich wealth funds and pensions to augment on-the-ground resources across Asia. In reality, overseas wealth funds, at times, are competing against adventurous Canadian pensions, deep-pocketed corporate investors, private equity firms and domestic players when it comes to investing in Chinese emerging companies. Lucrative Chinese initial public offerings are competitive.

While overall direct deals made by wealth funds slightly pulled back in 2016, mainland China suffered a significant reduction in incoming direct sovereign investor capital. According to data from the Sovereign Wealth Fund Transaction Database (SWFTD), wealth funds directly invested US$ 4.05 billion in mainland China in 2016 versus US$ 13.16 billion in 2015. In 2014, the figure was US$ 8.096. The United States was a beneficiary for 2016 when it came to direct sovereign fund transactions. However, according to SWFI Compass, an RFP and opportunity tracking service, external fund mandates toward mainland China were in demand by both wealth funds and pensions across the United States.

Realignment

Wealth funds are also realigning their Asia portfolios, seeking to lower exposure toward traditional financial institutions, while trying to identify investments in China’s consumer, technology and real estate sectors. In 2015, HIP China Logistics Investments Ltd., a sovereign wealth enterprise of the Abu Dhabi Investment Council (ADIC), kicked in US$ 750 million more toward its joint venture with Prologis Inc. called Prologis China Logistics Venture. Meanwhile, some sovereign funds were selling bank stocks. For example, in early 2017, according to Hong Kong filings, Qatar Investment Authority (QIA) trimmed 3.84 million H shares of Agricultural Bank of China Ltd. The shares were sold at an average price of HK$ 3.26 per share on January 27, 2017. Post-transaction, the QIA has a 11.99% stake in the Agricultural Bank of China from its previous 12% ownership stake.

Despite these headwinds, mainland China is on track to have more initial public offerings from very large Chinese companies. One example is China Reading (also known as Yuewen Group), China’s biggest online publishing and e-book company. China Reading, which is backed by Chinese giant Tencent Holdings, hopes to raise up to US$ 800 million in a 2017 IPO.

Biogen and Eisai Battered by Markets Over Alzheimer’s Trial Fail

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Cambridge, Massachusetts-based Biogen Inc. (BIIB) took a tumble of 28% in the morning of March 21st after it announced that it would cease its Phase 3 trials of Aducanumab. The therapy was intended to slow cognitive decline in patients with early onset Alzheimer’s. Biogen continued falling on March 22, 2019. Biogen and its Japanese development partner Eisai Co., Ltd. (ESALY) shared that the decision was based on results from an analysis conducted by an independent committee. The analysis determined that the trials were not going to demonstrate that Aducanumab could slow cognitive impairment. Eisai also fell 28% on the day, though it staged a relatively modest recovery on March 22nd. Some large institutional holders of Biogen include APG Asset Management (manager of Stichting Pensioenfonds ABP), Norges Bank Investment Management (manager of Norway Government Pension Fund Global), and Swiss National Bank.

The last time a treatment for Alzheimer’s made it to market was in 2003. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Italy’s CDP Inks Deals with Silk Road Fund and Bank of China

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China is building out its Belt Road Initiative (BRI) to continental Europe. On March 23, 2019, in Rome, Cassa depositi e prestiti Spa (CDP), Snam Spa (Snam) and Silk Road Fund Co., Ltd signed a Memorandum of Understanding (MoU) aiming at exploring and evaluating common business opportunities. Under the MoU, CDP and the Silk Road Fund will facilitate cooperation by focusing on the potential investment opportunities in the following sectors: financial services, agriculture, food, technology, manufacturing, infrastructure and transportation, energy and white economy (healthcare and personal care assistance).

Originally part of ENI, Snam S.p.A. is an Italian natural gas infrastructure company. The Silk Road Fund and Snam will analyze possible collaboration initiatives in the area of natural gas infrastructure (pipelines, storage facilities, LNG infrastructure and biomethane plants) in support of the growth of the natural gas and biomethane sectors in China from a decarbonisation perspective. In its capacity of a national promotion institutions, CDP will look at co-financing initiatives that are consistent with its mission also in the fields of energy and sustainability.

Bank of China

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Angolan Government Recovers Assets from Quantum Global Investment Management

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The State Prosecutor’s Office of Angola said that the country has control of all financial and non-financial assets. The Angolan government claims it recovered US$ 3.35 billion of assets that were under the management of Swiss-based Quantum Global Investment Management AG. Quantum Global Investment Management was essentially the sole manager of assets for the Fundo Soberano de Angola (FSDEA).[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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