Government Fund Weekly News Roundup — SWFs Invest In Chinese Logistics

February 05, 2016 by SWC Editors

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In the news this week: Government funds invest in Chinese logistics assets and allocate capital to an Indian infrastructure fund. In Russia, the Abu Dhabi Investment Authority buys into retail as the China Investment Corp. sells out.

Chinese Deliveries

"In the midst of chaos, there is also opportunity," wrote the fifth-century scholar and military strategist Sun Tzu. He might have been referring to sovereign wealth funds’ counter-cyclical investments in the Chinese logistics sector.

The Chinese economy certainly looks chaotic at the moment. The stock market nosedived in January and there are growing concerns over the health of the country's state-owned conglomerates, which are burdened with mountains of debt. Nevertheless, many government investors continue to identify long-term opportunities in the Middle Kingdom — and logistics companies are among their top targets.

On February 1, the Abu Dhabi Investment Authority (ADIA), the largest sovereign wealth fund in the Middle East, invested $750 million in Prologis China Logistics Venture (PCLV), an industrial real estate investment vehicle, using a subsidiary named HIP China Logistics Investments. Set up in 2011 by San Francisco-based industrial property operator Prologis, PCLV acquires and manages logistics properties across China. ADIA's first involvement with PCLV came in 2014, when it committed $500 million to the venture.

Montreal-based Ivanhoé Cambridge, the real estate unit of $232 billion Canadian pension fund Caisse de dépôt et placement du Québec  (CDPQ), made a similar investment on February 4, when it teamed up with Australian infrastructure giant Macquarie Group to purchase logistics assets from specialist firm Logos Property Group. The Sydney-based firm manages funds that own logistics properties worth $2 billion in China and Australia. (CDPQ invested $200 million in Logos China Logistics Club, a fund focused on Chinese logistics properties, in 2015.)

These deals follow one of the biggest fund-raising exercises of last year, when several sovereign wealth funds contributed to Singapore-listed developer Global Logistics Properties’ $7 billion China-focused infrastructure fund in July 2015. Such investments suggest government funds are confident China will make the transition to a more consumer-driven economic model, in which sectors such as e-commerce become key drivers of economic growth — and are positioning themselves to benefit from the shift. Sun Tzu would have approved.

Indian Infrastructure

Government funds also appear to be bullish on the prospects another BRIC economy: India. According to reports in the Indian press this week, several sovereign wealth funds are reportedly set to acquire stakes in the Indian government's newly-established National Investment and Infrastructure Fund (NIIF), which will focus on investments in the country’s energy and transport networks.

The funds discussing whether to invest in the NIIF include ADIA, the $334 billion Qatar Investment Authority, Singapore's $343 billion GIC and its national peer Temasek Holdings, which oversees $194 billion in assets. The Indian government has allocated 200 billion rupees ($2.9 billion) in start-up capital to NIIF and is seeking to raise the same amount from foreign partners. The government will offer the sovereign wealth funds seats on the NIIF's governing council to enable them to steer its investment strategy.

In Mumbai, a special-purpose vehicle (SPV) jointly owned by QIA and Bangalore-based developer RMZ Group is reportedly set to buy the Equinox Business Park for INR 24 billion from Indian conglomerate Essar Group. QIA and RMZ established the SPV, which specializes in Indian commercial real estate, in July 2013, when the partners each contributed $300 million in equity. QIA provided a further $160 million to the vehicle in April 2015.

SWFs Reshuffle Russian Portfolios

Less consensus exists among government funds when it comes to investments in a third of the BRICs: Russia. ADIA, for one, seems optimistic about the country’s economic prospects. This week the Abu Dhabi fund reportedly agreed to buy a shopping center in St. Petersburg from Moscow-based real estate developer HALS-Development for approximately 10 billion rubles ($125.8 million). ADIA beat competition from a consortium comprising the Russian Direct Investment Fund, a $10 billion state-backed private equity firm, and the $65.8 billion sovereign wealth fund Mubadala Development Co.

In contrast, the China Investment Corp. (CIC) sold one of the few Russian assets in its portfolio this week. CIC offloaded its 5 percent stake in the Moscow Exchange, Russia's largest stock exchange, which it had bought for approximately $50 million CIC in 2013 in a deal facilitated by RDIF.



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