2014 H1 - Funds

October 29, 2014

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Singapore Goes Shopping

Singapore’s two state investors, GIC and Temasek Holdings, dominated sovereign wealth fund activity in the first six months of 2014. During that time they made 61 direct investments abroad with a total value of almost $14 billion, 60 percent of both the number and total dollar value of cross-border deals by all sovereign funds.

The Singaporean funds have been the swiftest to identify a niche without an overflow of capital and to double down on opportunities. Since 2012 both have sought acquisitions in which they can benefit from rising discretionary incomes in emerging markets as the world’s middle class grows. In the first half of 2014, they continued to invest in emerging-markets technology companies, ranging from hardware to software to e-commerce. These 18 investments amounted to $2.8 billion, including Temasek’s participation in a $100 million capital-raising by Beijing-based online retailer Vancl.com and GIC’s purchase of $700 million worth of bonds from Chinese computer manufacturer Lenovo Group, also headquartered in Beijing.

GIC and Temasek Holdings’ Ten Largest Investments in Commercial and Consumer Technology, January 1 to June 30, 2014

Fund Company Country Sector Value ($ Millions)
1. GIC Lenovo Group (bonds) China computer hardware $700
2. GIC Kronos U.S. software 375
3. GIC iParadigms U.S. software 300
4. GIC Cheetah Mobile China mobile telephony 286
5. GIC Tencent Holdings China mobile telephony 258
6. Temasek Holdings Cheetah Mobile China mobile telephony 130
7. GIC Netshoes Brazil e-commerce 70
8. Temasek Holdings AsiaInfo-Linkage China software 50
9. Temasek Holdings Jasper U.S. software 50
10. GIC Linx Brazil software 41

Source: Sovereign Wealth Center

But Temasek also bet big on traditional consumers by investing HK$44 billion ($5.7 billion) in A.S. Watson Group, the drugstore-to-supermarket retail arm of Hong Kong–based Hutchison Whampoa, the conglomerate controlled by Hong Kong billionaire, Li Ka-shing. Temasek acquired a 24.95 percent equity stake in the company, which also owns British pharmacy chain Superdrug Stores, and pushed back plans for a listing on the London Stock Exchange. This was the second-biggest deal by a sovereign wealth fund since the financial crisis and the sixth-largest recorded by the Sovereign Wealth Center.

Asia-Pacific Sovereign Wealth Funds' Foreign Direct Investment, H1 2014


Source: Sovereign Wealth Center

This year also marked the start of a new direction for Temasek. The state-owned investor has traditionally focused on Asia, where it has helped Singaporean companies grow. In 2006 and 2007, Temasek broadened its investment outlook. Although it had invested in private equity funds since 2000, the firm had little firsthand knowledge of developed markets, and its experience proved to be an unhappy one. Temasek spent about $15 billion on big stakes in such ill-fated financial firms as London-based banks Standard Chartered and Barclays, and New York–based brokerage Merrill Lynch & Co., losing an estimated $8 billion when the 2008–’09 financial crisis hit.

These losses, combined with a need to help support local companies during the postcrisis period, prompted Temasek to largely withdraw from big investments in the U.S. and Europe, except in sectors like energy-related commodities and technology, where it hoped to gain diversification and industry know-how.

But in 2014, Temasek has again turned its attention to the developed world. It has opened new offices in London and New York, and deals in its target sectors — health care, oil and gas, and technology — have followed.

Temasek’s top allocation of the first half of 2014 was to boost its stake in Foster City, California–based biotechnology powerhouse Gilead Sciences, which has a stable of treatments for HIV, hepatitis C and other afflictions, to 1 percent, at an estimated cost of more than $500 million. Temasek also bought 1 percent of BG Group, a Reading, England–based oil and gas company, and 0.74 percent of San Diego–based semiconductor maker Qualcomm, both for just shy of $400 million apiece.

ADIA and QIA Still Hot on Hotels

Although real estate accounted for a smaller chunk of sovereign wealth funds’ investments than in previous years, it continued to be a mainstay for the Abu Dhabi Investment Authority and the Qatar Investment Authority (QIA). These state-owned funds made sizable purchases of luxury hotels, office towers and shopping malls. Their real estate acquisitions for the first half totaled about $3 billion, though the price tag for QIA’s largest deal — 50 percent of a portfolio of five InterContinental–branded hotels in Europe — was unknown.

Middle Eastern and North African Sovereign Wealth Funds' Foreign Direct Investment, H1 2014


Source: Sovereign Wealth Center

Although QIA’s investment pace has slowed since the June 2013 transfer of power in Qatar, the fund can still capture headlines, as it did in the first half of 2014. The fund made its first high-profile investment of the year in March: Qatar Holding, its direct-investment arm, led a consortium of New York–based private equity firm Certares, funds managed by BlackRock, also based in New York, and Macquarie Capital of Sydney, to buy a 50 percent stake in American Express Co.’s global business travel division. The New York credit card giant continues to own the other half.

In May, QIA flew in the face of U.S. and European Union sanctions imposed on Russia following its invasion and occupation of Crimea, part of Ukraine, when it committed $2 billion to a joint vehicle with the Russian Direct Investment Fund, the federation’s state-owned private equity firm. This investment gave Russia powerful evidence that it could still attract capital despite opposition from the West.


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