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

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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.

Temasek Rides with Google on Go-Jek

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Singapore’s Temasek Holdings has reportedly joined forces with Google LLC and Chinese on-demand service provider Meituan-Dianping as part of a US$ 1.2 billion fundraising effort for Indonesian ride-hailing startup Go-Jek that has put regional rivals like Uber and Singapore-based Grab on notice.

Screen Shot Go-Jek, January 19, 2018

Although exact figures for individual stakes have so far been kept secret, the new infusion of capital puts Go-Jek, incorporated as PT Aplikasi Karya Anak Bangsa, at a valuation of roughly US$ 4 billion. Samsung Venture Investment Corporation also participated in funding, as well as existing private equity investors KKR & Co. LP and Warburg Pincus LLC.

Google’s direct involvement in Go-Jek’s growth – rather than through its Google Ventures unit – highlights its faith in the latent potential of ride-sharing services – and the tech-enabled consumer services sector as a whole – in Southeast Asia. Home to more than 640 million potential customers, the region was identified as the fastest growing emerging market for e-commerce globally in an industry report published jointly by Google and Temasek last December. According to data compiled by the internet-giant and the Singaporean sovereign wealth fund, ride-sharing in Southeast Asia is expected to grow into a US$ 20.1 billion industry by 2025, compared to US$ 5.1 billion in 2017.

2011 Origin Story

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Temasek Leads Series B Round for Chinese Robo Startup Rokid

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Rokid Corporation Limited, a Chinese robotics startup that specializes in smart devices assisted by artificial intelligence (AI), announced the closing of a Series B extension round through its WeChat account on January 18, 2018. The capital-raising effort was led by Singapore’s Temasek Holdings, with additional contributions from Credit Suisse Group, China Development Bank’s overseas investment arm CDIB Capital International, and existing investor IDG Capital. Although Rokid did not disclose the size or terms of the deal in its announcement, the technology company reportedly secured US$ 100 million in funding.

Founded in 2014 by chief executive Mingming Zhu and chief financial officer Eric Wong, Rokid’s core products consist of its smart speakers, the Rokid Pebble and Alien, as well as the newly debuted Rokid Glass augmented reality spectacles. The company’s most exciting offering, however, is its Full Stack Open Platform, a collaborative effort made in partnership with Alibaba that gives third-party developers backdoor access Rokid’s software suite and hardware integration and will – it hopes – help give its offerings the accessibility and recognition they need to thrive outside its home market of China.

Rokid is particularly keen on bringing its products to the U.S., where it believes it can challenge Google and Amazon’s dominance in the smart home arena. Amazon makes the Amazon Echo, while Google has Google Home.

The Series B

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SWFI First Read, January 19, 2018

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RDIF Portfolio Company PhosAgro Raises Bond Issue

PhosAgro is a portfolio company of the Russian Direct Investment Fund (RDIF). The company price out a US$ 500 million 5.25-year Eurobond issue that has a coupon of 3.949%.

Alison Swonnell Named Global Head of Institutional Marketing at Fidelity International

Alison Swonnell was hired on as Global Head of Institutional Marketing at Fidelity International. She will be based in London and report to Chuch McKenzie, the firm’s global head of institutional clients. Before Fidelity, Swonnell was Director of Fund Operations for LCM Partners, an alternative investment management firm.

NY Governor Cuomo Seeks to Treat Carried Interest as Ordinary Income for State Taxes

On January 18, 2018, New York Governor Andrew Cuomo revealed he had submitted a bill to the New York State Legislature that seeks to treat carried interest as ordinary income rather than capital gains in regard to state taxes. Governor Cuomo in his press release said that the federal carried interest tax provision costs New York roughly US$ 100 million per year.

William Bain – Bain Founder Passes Away

Dated January 18, 2018, William Bain Jr. passed away at his home in Naples, Florida at the age of 80. Bain started at the Boston Consulting Group and left in 1973 to form Boston-based Bain & Co. By 1984, Bain formed Bain Capital alongside a number of colleagues including former 2012 Republican presidential nominee Mitt Romney. In a statement to the Boston Globe, Romney said, ” It’s hard for me to imagine my life and career without Bill Bain’s mentoring.”

Prostar Capital Gets Controlling Stake in Socar Aurora Fujairah Terminal

Prostar Capital now has a 90% control stake in Socar Aurora Fujairah Terminal FZC by purchasing 100% of the shares of Socar Aurora Terminals S.A. The Prostar Capital entities investing in the asset are Prostar Asia-Pacific Energy Infrastructure Fund and a co-investment fund managed by Prostar Capital for a large U.S. state pension plan. The storage terminals acquired in the Port of Fujairah in the United Arab Emirates.

Socar Aurora Fujairah Terminal FZC is a joint venture between State Oil Company of Azerbaijan Republic (SOCAR), Swiss-based commodity trader AURORA Progress, and the Government of Fujairah.

Prostar Capital started buying the terminal back in 2013 at 18.6%. The private equity firm eventually moved its ownership up to 40% on August 14, 2015.

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