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Sovereign Wealth Funds Go Gaga for Venture and Tech Investments

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Sovereign wealth funds are betting big on innovation and technology shifts in areas such as cloud computing, consumer mobile, driverless cars and augmented reality to help drive return growth.

A cadre of high-profile wealth funds have set up shop in the San Francisco Bay Area including Temasek Holdings, Khazanah Nasional and GIC. The Qatar Investment Authority (QIA) has plans for a west coast office. Why? The trend lines are clear, these savvy institutional investors are keen on getting dealflow and access to Silicon Valley’s latest startups.

According to data from the Sovereign Wealth Fund Institute (SWFI), sovereign funds directly invested US$ 13.231 billion into the information technology sector which include mobile, cloud computing, software, e-commerce and other tech industries. In 2010, only US$ 2.06 billion was directly invested in the information technology sector. These tabulated figures only count direct investments, not fund investments. The reasons for the wealth fund ramp up in tech are manifold. First, a greater number of sovereign funds have built up internal resources, moved operations near the battle lines and have expanded business networks, thus increasing deal flow. For example, SWFI hosts conferences, known as Institute Fund Summits, globally in countries such as Singapore, Germany, Hong Kong and the United States. From conversations and increases in wealth fund attendance by internal figures, the consensus seems that wealth funds want more access to deal flow and investment opportunities in a world of “excessive noise”.

Second, sovereign fund behemoths like Singapore’s GIC Private Limited have resiliently formed stable relationships with active tech-focused private equity firms like Silver Lake Partners and Hellman & Friedman. Third, sovereign investors are seen as both strategic and patient capital. Unlike venture funds, sovereign funds like the Abu Dhabi Investment Authority (ADIA) can hold illiquid investments even longer than pension funds and private equity capital. By their very nature, sovereign wealth funds are associated with governments (word – sovereign), which could provide opportunities for startups entering closed or opaque markets.

Unicorns

Unicorns are known as technology startups with a valuation of more than US$ 1 billion. Despite the oil glut and previous excessive volatility in the markets, collectively, sovereign funds amassed a pool of capital exceeding US$ 7.4 billion in assets. Since 2007, these sovereign wealth institutional investors started to become more of a permanent capital source for notable startups, growth companies and unicorns. Many of these investors have bypassed placing capital into venture funds, opting to invest directly.

Sovereign investors have backed a number of storied unicorns such as Uber Technologies, Snap (formerly known as Snapchat), Square, Xiaomi, Flipkart, Airbnb and Spotify. The media had heavily covered Saudi Arabia’s Public Investment Fund (PIF) US$ 3.5 billion investment into Uber. Did the media properly cover Temasek’s investment in Snap?

Regional Venture Investing

Sovereign funds like Saudi Arabia’s Public Investment Fund (PIF) remain active in regional venture markets. PIF backed e-commerce startup Noon, while seeing its rival Souq.com get gobbled up by online giant Amazon. In Oman, 500 Startups is raising a MENA fund for startups working with local institutions like the Oman Investment Fund (OIF).

Sovereign funds remain an important pillar of the venture capital and technology investment community.

Shaktikanta Das Named as New CB Governor for India

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The Indian government named Shaktikanta Das as the new Governor of the Reserve Bank of India. He will be the 25th governor to lead the central bank. Das is India’s former economic affairs secretary who stepped down in May 2017.

Das replaces Urjit Patel, who stepped down as central bank governor for “personal reasons.”

Urjit Patel had been arguing with India’s finance ministry on matters such as easing lending policies versus what the appropriate size of foreign reserves should be.

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UBS and APG Form Japanese Residential Property Venture

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Long horizon institutional investors are keen on taking advantage of appealing underlying fundamentals in select Japanese residential submarkets that have experienced population growth versus rural areas. The housing market in Tokyo has decoupled from the rest of Japan due to attractive demographics and low interest rates. Real estate valuations for Japanese housing in Tokyo is still at a distance relative to the very-much inflated market of the late 1980s. UBS Asset Management Real Estate & Private Markets business and APG Asset Management, which oversees the assets of Stichting Pensioenfonds ABP, formed a new property joint venture to invest in residential properties in Japan. UBS Asset Management will manage the fund and partnership, while APG will play a strategic role. APG will contribute US$ 175 million into the venture.

This platform will pursue a build-to-core investment strategy with some allocation to the reconfiguration of income-producing operating assets in cities such as Tokyo and Osaka.

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GIC Sells 2 Chifley Square to Charter Hall

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Singapore’s GIC Private Limited sold a 100% ownership stake in a large building in Sydney, 2 Chifley Square, for A$ 98.5 million to the Charter Hall Prime Office Fund, a wholesale real estate fund. Charter Hall Group owned the building next to Chifley, the Gresham building at 167 Macquarie Street.

Advisors for the transaction are Colliers International and KPMG Real Estate Advisory.

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