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With $50 Billion, Trending Slowdown in 1H Sovereign Fund Direct Investments for 2017



Source: Sovereign Wealth Fund Transaction Database

As of June 28, 2017, the Sovereign Wealth Fund Institute (SWFI) can report that first half direct transactions made by sovereign wealth funds for 2017 totaled US$ 50 billion, compared to the first half of 2016 at US$ 54.17 billion and 2015 at US$ 67.3 billion. However, overall, from 2015, total sovereign fund direct transactions totaled US$ 122.04 billion versus 2016 at US$ 140.27 billion. Political events have impacted larger privately-negotiated transactions and open market transaction flows. For example, there was a monumental surge in open market transactions by sovereign funds after the U.S. election. Honing in by sectors, sovereign funds have significantly multiplied direct investments into institutional real estate, totaling US$ 21.83 billion in 1H 2017 versus US$ 13.53 billion in 2016. Sovereign funds made very large real estate purchases, such as the China Investment Corporation (CIC) investing in near-controlling positions in Manhattan offices, while competitively acquiring Logicor from The Blackstone Group. In addition, the Qatar Investment Authority (QIA) has kept pace on increasing purchases in office properties in the U.S., nearly finalizing a round of deals with its real estate investment partner Douglas Emmett, Inc.

A quarterly period record US$ 28.69 billion of direct sovereign fund investment surged into the U.S. in the final quarter of 2016 – besting bailouts (calculated on a quarter basis) during the global financial crisis.

The Singaporean sovereign funds, GIC Private Limited and Temasek Holdings, continue their build out of a massive student housing portfolio either through partnering or sourcing directly from secondary owners. The more conservative real estate sovereign fund institutional investor Norges Bank Investment Management (NBIM) had sedated its powerful property purchasing machine, even putting a freeze on Japan. The Norwegian giant has witnessed a slowdown in the growth of its total annual net rental income generated from its sizable property allocation. In 2015, annual net rental income for the Norway sovereign fund was US$ 790.3 million compared to US$ 886.5 million at the end of 2016.

President Trump Steam

A quarterly period record US$ 28.69 billion of direct sovereign fund investment surged into the U.S. in the final quarter of 2016 – besting bailouts (calculated on a quarter basis) during the global financial crisis. In the first half of 2017, an investment hangover lingered for these funds, thus causing a dramatic slowdown in direct U.S. investments by sovereign funds. For example, during 1H 2017, US$ 12.4 billion was directly invested in the U.S. versus US$ 19.77 billion in 1H 2016. The SWFI research team believes if an infrastructure plan were put in place and signed by the U.S. President, it could have a dramatic increase on direct transactions into the U.S.

The Brexit Effect and Select Opportunism

Sovereign fund direct investments in the United Kingdom picked up in the first half of 2017 at around US$ 20.16 billion versus US$ 10.48 billion in 1H 2016. Some large ticket purchases in England were a major boost for the country. For the second half of 2016, many active sovereign funds had re-allocated and moved money out of the U.K. and into the U.S., thus SWFI tabulated only US$ 8.7 billion in direct investments in 2H 2016. A few sovereign wealth investors such as China’s SAFE Investment Company accelerated the process of selling down their European direct listed equity holdings. By the end of May 2017, SAFE had dumped its whole position in oil giant BP, dropping US$ 2.26 billion worth of common equity holdings.

Tech Investments

Since 2006, in both the number of transactions and total deal size, SWFI has calculated a substantial increase in direct venture capital startup investments. This is a sharp difference compared to a decade ago, where only a few sovereign funds chose to go direct versus allocating to venture capital funds. For example, in the second quarter of 2017, Australia’s Future Fund participated in a US$ 40 million venture round in video analytics company Conviva, which is based in Foster City, California. During the same period, Singapore’s Temasek Holdings also made a notable investment in IP Holdings.

Please note that first half data for wealth fund transactions are not fully tabulated.

Alecta Anchors Emerging Markets Impact Fund



Swedish occupational pension investor Alecta made an anchor commitment of €164 million (US$ 200 million) towards the NN-FMO Emerging Markets Loan Fund, pushing the impact fund past its minimum target by 25% to make its first close at US$ 250 million on Tuesday. Alecta was joined by three other key investors from Sweden and the Netherlands, including Stichting IMAS Foundation – the asset management arm of IKEA’s indirect owner, Stichting INGKA Foundation.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Is Abraaj Doomed as Some Institutional Investors Scatter?



Founded in 2002 by Pakistani businessman Arif Naqvi, Dubai-based The Abraaj Group generated big waves onto the private equity scene by focusing on emerging markets and joining influential organizations such as the Emerging Market Private Equity Association (EMPEA) – they are a leadership circle member. In fact, many of their investors are EMPEA members such as a number of sovereign funds, the World Bank’s International Finance Corporation (IFC) and the Bill & Melinda Gates Foundation.

Abraaj was a fundraising machine, as the fund targeted areas such as sub-Saharan Africa and markets like Turkey. However in 2008, the private equity manager was mired in turmoil as a number of limited partners investigated the misuse of investor funds in a US$ 1 billion healthcare fund – Abraaj Growth Markets Health Fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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SWFI First Read, April 25, 2018



Finnish Basic Income Trial Run Drops on its Face

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Omar Anwar Names as Indonesian Country Head for Aberdeen Standard Investments

Omar Anwar was hired as Head of Indonesia by Aberdeen Standard Investments. He was also appointed as President of PT Aberdeen Asset Management, a unit of the company.

Charles Jewkes to Lead Global Financial Institutions at Aviva Investors

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Zimbabwe Seeks to Leverage Trade Receivables for Government Fund

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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