2013 Q1 Report - Overview

June 21, 2013 by Loch Adamson

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SOVEREIGN wealth fund investment activity and volume dropped markedly in the first three months of 2013 as funds battled with global investors’ unending search for yield. Money coursed through international markets, increasing valuations and competition for major deals, a development that left sovereign wealth funds with fewer attractive targets.

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During the first quarter sovereign wealth funds made 34 investments worth a total of $8.7 billion, Sovereign Wealth Center data shows. That’s a 30 percent decline in investment value from the same period last year and a 44 percent drop from the previous quarter. European real estate assets accounted for the largest share (43 percent, or $3.6 billion) of sovereign wealth funds’ foreign direct investment in the first quarter. Like many other institutional investors, sovereign wealth funds have recently favored real estate to help inflation-proof their portfolios and diversify away from traditional asset classes such as stocks and bonds.

Another important trend saw sovereign wealth funds investing in companies poised to harness growth in emerging-markets consumer demand. Companies providing goods and services in emerging Asia received investments of $740 million. Two factors are driving this trend: rising consumerism among the growing middle classes and the advent of economic elites in emerging markets. Both Singaporean sovereign wealth funds — Government of Singapore Investment Corp. (GIC) and Temasek Holdings — invested in the initial public offering of Indonesian retailer Matahari Putra Prima, a large chain of department stores and supermarkets that serves newly affluent consumers. Meanwhile, the Qatar Investment Authority (QIA) spent $390 million developing the first Harrods-branded hotel, in Malaysia’s capital, Kuala Lumpur, and increased its stake in New York–based jeweler Tiffany & Co. to more than 11 percent in response to growing global demand for luxury goods and services.

Asian Sovereign Wealth Funds' International Investments

Source: Sovereign Wealth Center

Middle Eastern and North African Sovereign Wealth Funds' International Investments

Source: Sovereign Wealth Center

According to our data, QIA was again the most prolific spender in the first quarter, investing almost $2.5 billion in high-end hotels and luxury goods producers. China Investment Corp. (CIC) — historically, an active direct investor — spent relatively little ($385 million), taking a $100 million stake in the IPO of Moscow Exchange and partly financing Chinese lithium miner Chengdu Tianqi Industry (Group) Co.’s purchase of Perth, Australia–based Talison Lithium. Since its inception in 2007, CIC has received inflows of $230 billion in only two tranches: $200 billion at its launch and $30 billion at the end of 2011. As its assets have prospered, the fund has reinvested profits: The Sovereign Wealth Center has recorded $310 billion in total investments. But we believe it is now close to fully invested and has little fresh capital to deploy.

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