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Sovereign Funds and Successful Private Equity Firms

It is a nebulous swamp for private equity firms to navigate nowadays. Fee compression, competition from other public investors, regulatory changes, quality deal flow, and the challenge of raising non-redeemable capital commitments to new and successor private funds are just a few of the tough challenges private equity firms are dealing with. Tighter financing is crimping the buyout industry. The final slap is the anemic IPO market.  Public investors are still upbeat about private equity.  War chests are still being raised.

The model of private equity is slowly morphing, especially as sovereign wealth funds and public pension funds desire a preference to alternative private equity fund structures such as managed accounts, smaller funds, and co-investment vehicles. To go even further, increasingly several large public investors are insourcing their own investment professionals and make direct investments in alternative investments without the use of private equity advisers. Public funds that can compete with compensation packages in the private sector are more likely to build their own internal deal team. It is simple economics. In fact, they may become the private equity firm’s competitors in the long run.

With that being said, what are a few essential factors for being a successful, long-lasting private equity firm in today’s market?[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Asian Sovereign Funds Not Slowing Down on Tech Investing

According to data from SWFI’s Sovereign Wealth Fund Transaction Database, Asian sovereign funds invested US$ 6.05 billion directly into companies and assets in the information technology sector from Jan 2017 to November 22, 2017. In a comparable time frame from Jan 2016 to November 22, 2016, this same group of Asian sovereign funds directly invested US$ 5.02 billion in the sector. These are direct investments, not fund commitments or manager allocations.

Asian sovereign funds such as GIC Private Limited, Temasek Holdings and the Korea Investment Corporation (KIC) have demonstrated bullish signals to the technology community over other sectors. GIC and Temasek have also been major investors in the private side of deals, funding a wide range of tech startups, while providing financial firepower in buyout transactions.

Some notable direct tech investments in 2017 by sovereign funds include Meituan-Dianping, SoundCloud, Nets A/S, Visma AS, Turn, Inc. and Vantiv.

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Future Fund Makes a Guardian Out of Former J.P. Morgan ANZ Chair

The Australian government has appointed Robert Priestley – current non-executive chair of J.P Morgan for Australia and New Zealand (ANZ) and a non-executive director of ASX – to serve on the Future Fund Board of Guardians for a five-year term from November 7, 2017. Priestley replaces former Morgan Stanley Australia chief executive Steven J. Harker.

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Associated British Ports Reboots Property Development Arm to Capitalize on Land Bank

Associated British Ports (ABP) – operator of 21 major ports throughout the United Kingdom – has announced a reboot of its ABP Property division, complete with a new team of specialists in commercial development and logistics led by Huw Turner, in order to identify and develop strategically significant locations in its 2,372 acre land bank.

ABP is owned in large part by a consortium of pensions and sovereign funds, including the Canada Pension Plan Investment Board (CPPIB) at 33.88% ownership, OMERS at 30%, Singapore’s GIC Ventures Pte Ltd at 20.00% ownership, and the Kuwait Investment Authority at 10.00% ownership. Large institutional investors such as sovereign funds, pensions, and endowments have slowly increased allocation towards infrastructure over the past six years as an alternative to equities and bonds, according to asset allocation data from SWFI.

Plans

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