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Walmart Delivers Big Blow against Amazon with Flipkart Takeover

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Retail giant Walmart delivered a major blow against Amazon in the fight for India’s rapidly-growing e-commerce market of some 1.3 billion customers with the approval of a US$ 16 billion bid for a majority stake in Flipkart, the subcontinent’s largest online operator by sales volume. In what is thought to be the single largest foreign direct investment in Indian history, Flipkart’s board has approved an agreement to sell 77% of the company to the world’s largest retailer at a valuation of roughly US$ 20 billion. Google parent company Alphabet Inc. – earlier reported to be picking up a 15% stake for US$ 3 billion – has said negotiations are ongoing as to whether it will join Walmart as a co-investor.

If completed, the acquisition will grant Walmart access to some 32% of India’s e-commerce sector gained by Flipkart since its founding in 2007 by former Amazonians Sachin and Binny Bansal, who share a mutual interest with the Arkansas-based mega-retailer in maintaining dominance on the subcontinent over their former employer and shared rival. In addition to a US$ 2 billion infusion of new equity, Walmart brings a treasure trove of experience in logistics and marketing that will allow Flipkart to shore up its overhead costs and expand its portfolio into grocery sales.

Amazon has committed approximately US$ 5.5 billion towards aggressively expanding its Indian operations since arriving on the scene in 2013, capturing some 31% of the market and positioning itself to overtake Flipkart as the undisputed local leader of online retail. With Flipkart’s pact with Walmart sealed, however, any opportunity to assume the lead in India is unlikely to materialize, forcing Amazon CEO Jeff Bezos and company to settle for the unfamiliar role of second place in a country that is projected to grow into one of Amazon’s largest sources of revenue outside the U.S. in the years to ahead.

The Seattle-based firm has struggled to duplicate its North American success overseas in the face of stiff competition from local outfits such as Flipkart and China’s Alibaba who have had far longer to build out their logistics networks and tailor their offerings to customers far removed from – and far less enamored with – the power of Amazon’s not-quite-global brand, which saw losses on its international operations more than double in 2017 to US$ 3 billion, compared to US$ 1.3 billion from the year previous.

Sovereign Wealth Fund-Backed

Under the agreement, SoftBank Group of Japan will make a quick and tidy turnaround of US$ 4 billion on the 20% stake in Flipkart it bought through its Vision Fund for US$ 2.5 billion just last August, when the company was valued at US$ 12 billion. The exit is a first for the US$ 93 billion technology fund, which received sizeable contributions from a number of sovereign backers, including Abu Dhabi’s Mubadala Investment Company and the Public Investment Fund of Saudi Arabia.

Singapore’s GIC Private Limited is also an investor in Flipkart. According to data from the Sovereign Wealth Fund Institute’s transaction database, sovereign wealth funds and public pensions have directly invested US$ 8.89 billion into India in 2017 and US$ 4.68 billion in 2016.

Other existing shareholders – including Microsoft, eBay, Tencent Holdings, and early investors Tiger Global Management and Accel Ventures – will retain small minority stakes. Walmart chief executive Doug McMillon is reportedly flying to Flipkart’s headquarters in Bengaluru this week to announce final closing of the deal.

SWFI First Read, May 25, 2018

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MedInvestGroup Pushes Investment into Russian High-Tech Oncology Centers

The Russian Direct Investment Fund (RDIF) and Mubadala Investment Company have attracted MedInvestGroup, which manages a network of the PET Technology regional oncology and radiological centers, as a strategic investor in the joint management and development of a network of cancer diagnosis and treatment centers. The deal aims to significantly improve the efficiency of the already functional centers in Podolsk and Balashikha. The corresponding agreement was announced today at the St. Petersburg International Economic Forum.

Southern Satellite City and RDIF Reach a Financing Agreement

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French Industrial Giants Find Opportunity with RDIF

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A number of French industrial companies continue to invest within Russia, finding opportunities within the mega country. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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CPPIB Targets 33% in Emerging Markets by 2025

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The Canada Pension Plan Investment Board (CPPIB) generated a net return after expenses and pension contributions of 11.6% for the fiscal year ended March 31, 2018, versus its reference portfolio of 9.8%. For the reported fiscal year, CPPIB grew its net assets to a new high of C$ 356.1 billion (US$ 277.2 billion), compared to C$ 316.7 from the year previous.

Mark Machin, President and Chief Executive Officer at CPPIB, attributed the performance to the rising tide in public equity markets across most geographies, whose volatility in recent months was buoyed by significant fourth quarter earnings in the fund’s private holdings. Public and private equities, CPPIB’s first and third largest asset classes by exposure at 38.8% and 20.3%, saw estimated returns of 11.4% and 16.1%, respectively. Machin joined CPPIB in 2012 and was moved to the top in June 2016, following the departure of Mark Wiseman. Machin has a knack for the Asian region, being CPPIB’s first president for Asia and also spent nearly 20 years in Asia, working at Goldman Sachs. CPPIB plans to continue heavily investing in the APAC region, along with India.

Emerging Markets

“By 2025, we will invest up to a third of the Fund in emerging markets, which by that time are anticipated to account for 47% of global GDP,” said Machin in his section of the annual report outlining the pension’s updated strategic plan. CPPIB currently has C$ 56.1 billion invested in emerging markets, C$ 22.4 billion of which is wrapped up in China.

Foreign and emerging markets continued to dominate in CPPIB’s private equity investments with returns of 16.0% and 19.5%, compared to 1.8% for their Canadian counterparts. Asia was a standout market for the pensioner, which raised its exposure to private equity deals in the region by nearly 28% from C$ 13.4 billion to 17.1 billion, closed six direct investments worth C$ 1.6 billion, committed C$ 1.7 billion towards eight funds, and completed three secondary transactions for C$ 400 million.

With 275 global transactions completed over the fiscal year, CPPIB’s geographic exposure places 15.1% of its assets at home in Canada, 37.9% in the neighboring United States, 13.2% in continental Europe, 5.6% in the United Kingdom, 3.1% in Australia, and a whopping 20.4% in Asia.

Public Equities

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