SWFs Double Down on Hotels
Sovereign wealth funds’ investments
in the hospitality sector have dominated the headlines this
week. On Monday, the British press reported that the
Abu Dhabi Investment Authority (ADIA) had offered an
eye-watering £1.6 billion ($2.4 billion) for a trio of
landmark London hotels — the Berkeley, Claridge's and
the Connaught — owned by the Maybourne Hotel Group. At
a reported £3 million per room, the offer would represent
one of the highest per-key prices ever paid. But ADIA will face
competition, with other Middle Eastern investors
believed to have submitted rival bids.
It’s not just British properties that
are attracting interest from sovereign wealth funds. The
Sovereign Wealth Center has observed a boom in the
Japanese hospitality sector in 2015, and hotels in emerging
markets are drawing capital from state investors too. On
Oman Investment Fund announced it would develop a five-star
luxury resort in the town of Mirbat in the south of the
country, to be managed by Singapore-based international leisure
group Alila Hotels and Resorts. And in Africa,
Fondo Soberano de Angola (FSDEA) has confirmed its plans to
invest in a chain of business hotels across the continent.
FSDEA is the second African fund to attempt the strategy: under
the Gaddafi regime the
Libyan Investment Authority built the Laico Hotels and
Resorts chain during the 2000s to spread the
country’s influence across the continent.
European Infrastructure Boom
European infrastructure continues to attract
strong interest from sovereign wealth funds. ADIA is reportedly
rivaling Gingko Tree Investment, a unit of
China’s State Administration of Foreign Exchange
(SAFE), for the Madrid-based gas distribution company
Madrileña Red de Gas. The business, which is being sold
by financial services giant Morgan Stanley, could fetch as much
as €1.8 billion ($2 billion).
Despite high valuations and fierce competition,
the trend for infrastructure deals looks set to continue for
some time yet. In an
exclusive interview, Abdiel Santiago, technical secretary
Fondo Ahorro de Panama (FAP), told Sovereign Wealth Center
that "government inaction" had led to a "big opportunity" to
finance infrastructure projects in developed markets over the
longer-term. According to Standard & Poor’s
Ratings Services, the so-called infrastructure gap —
the difference between investment needs and public spending on
infrastructure — will amount to some $500 billion each
year between now and 2030. On the whole, however, sovereign
wealth funds prefer to invest in established infrastructure
Governance Under Scrutiny
Sovereign wealth fund governance has also been in
the spotlight this week. Speculation continues about the
shake-up at the
China Investment Corp., following Deputy COO Fan
Yifei’s appointment as the new vice-governor of
the People’s Bank of China, the central bank. Some
talk about a state-sanctioned power grab at CIC.
Others praise smart business planning.
On Tuesday, Singaporean state investor
Temasek Holdings was forced to rebut claims that changes in
the city state’s budgetary framework would prompt
a shift in the fund’s strategy. Reports had
suggested the new scheme would allow the government to dip into
Temasek’s coffers more readily, and that the
organization would need to hold more liquid assets as a result.
statement on its website, Temasek strongly denied that it
would have to change its investment strategy.
Russia’s government, on the other
hand, is dipping into its sovereign wealth funds at will as it
tries to prop up its ailing economy, which has been hit by the
dual blow of Western sanctions and the collapse in oil prices.
We learned this week that the value of Russia’s
Reserve Fund, a stabilization vehicle, dropped by the
greatest amount in more than four years in January, as the
Ministry of Finance used its maximum yearly
allowance of 500 billion rubles ($8 billion) to cover a
widening budget deficit.
Nigeria, too, has been hit by the
crash in crude prices, but Uche Orji, CEO of the
Nigeria Sovereign Investment Authority (NSIA), said this
week that the government will resist the temptation to draw on
its sovereign wealth fund — at least until it grows