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Sovereign Wealth Funds Go Gaga for Venture and Tech Investments

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.

SWFI First Read, November 19, 2017

Mubadala Petroleum Sees Opportunities in Mexican Upstream and Downstream

Mubadala Petroleum, a unit of Mubadala Investment Company, is studying investment opportunities in Mexico. The opportunity set is both in upstream in oil production, or in downstream sectors. Mubadala recently invested heavily in the Gulf coast.

OMERS-Backed CEDA International Corporation Acquires Joe Loomis Trucking

In 2005, Borealis Infrastructure, a unit of OMERS, had acquired CEDA International Corporation (then known as CEDA Holdings Limited) from Precision Drilling Corporation for C$ 274 million. CEDA International Corporation was moved into the portfolio holdings of OMERS Private Equity, another unit of OMERS. On November 16, 2017, CEDA International Corporation acquired Dawson Creek, British Columbia-based Joe Loomis Trucking Limited.

IMF Believes Kuwait Government Needs $100 Billion Over Next 5 Years for Gross Financing Needs

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Ontario Teachers’ Takes to the Seas with Atlantic Aqua Farms Acquisition

The Ontario Teachers’ Pension Plan (OTPP) has made its first investment in the rising aquaculture industry with the acquisition of Orwell Cove-based Atlantic Aqua Farms, Inc. (AAF) and its affiliated entities from San Francisco-based private equity firm Encore Consumer Capital, through its Encore Consumer Capital Fund L.P., for an undisclosed amount. Estimates of the deal’s value, however, place it at over C$ 100 million. Encore Consumer Capital put AAF for sale back in March 2017.

Based out of Canada’s Prince Edward Island, AAF is the largest grower and processor of the region’s famed blue mussels under the brand names Canadian Cove, Confederation Cove, and J.P.’s shellfish. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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UAE Prepares ADNOC Distribution IPO

The Abu Dhabi National Oil Company (ADNOC) embarked on plans to sell a minority stake of 10% or more in its fuel distribution unit in an initial public offering on the Abu Dhabi Securities Exchange (ADX) scheduled for December of 2017. ADNOC Distribution is the largest fuel distributor in the United Arab Emirates with 67% of the market share by number of retail service stations and benefits from a “stable and predictable” market-pricing regime, according to a company statement.

The offering will consist entirely of existing stock held by ADNOC. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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