Sovereign Wealth Fund Trends 2012 - Overview

May 12, 2013 by Loch Adamson

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Despite continuing global economic uncertainty in 2012, sovereign wealth funds (SWFs) remained active in financial markets. SWFs' investment activity last year changed little from 2011, suggesting that we are now observing a new normal for these investment giants.
 
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However, politicians and policymakers hoping that SWFs would take advantage of their long-term investment horizons to help revive developed economies by taking on more risk for greenfield infrastructure projects, or support newly emerging markets in Africa, will be disappointed. By and large, SWFs have played it safe since the financial crisis. As a group, they appear to have chosen to take advantage of the growing demand for commodities in emerging markets. SWFs have also sought to capitalize on rising discretionary income in the developing world in a related but more understated trend that is reflected by investments in consumer-oriented industries. However, SWFs have concentrated on industry leaders in established emerging markets such as China, India, Malaysia and Turkey, rather than true frontier markets.

Developed markets accounted for the bulk of SWFs' direct investments in 2012. However, this capital flow doesn't represent a vote of confidence. The funds mostly bought safe-haven real estate assets in London and Paris, picked up monopoly infrastructure assets such as water utilities and gas pipelines in Europe, and invested in commodity producers, particularly in the U.S. Several SWFs invested in technology, an established investment trend, which facilitates technology and knowledge transfers to their home economies. But only one such investment was sizable: Qatar Investment Authority's purchase of 3 percent of German technology giant Siemens for more than $3 billion.

Although the U.S. experienced stronger growth than the European Union in 2012, it only attracted major direct investments from SWFs in the commodity sector. Several major funds, including the Abu Dhabi Investment Authority, Government of Singapore Investment Corp. and the Hong Kong Monetary Authority, invested in real estate. SWFs also bought into the general partnerships of several privately held investment firms such Santa Monica, California-based Chernin Group and Washington-based EIG Global Energy Partners, and made a smattering of investments in U.S. technology and telecommunications. That said, SWFs largely continue to invest under the radar in the U.S., perhaps reflecting the opinion of Gao Xiqing, CIO of China Investment Corp. in a panel discussion at the Boao Forum for Asia in April 2013: "The U.S. is not one of the most welcoming countries in the world for us."

Quick Facts
Number of direct SWF investments 202
Value of direct investments $53.3 billion
Year-on-year growth -17.4%
Industry Breakdown

Real estate 26%

Commodities 23

Financial services 23

Infrastructure 12

Consumer goods and services 4

Other 13

Geographic Breakdown

Europe 53%

Asia-Pacific 18

North America 9

Central Asia 8

Latin America 6

South Asia 3

Oceania 3

Sub-Saharan Africa <0.01


Direct Sovereign Wealth Fund Investments - 2002-'12


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