2nd Quarter 2013 - Funds

September 27, 2013 by Loch Adamson

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The slowdown of sovereign wealth fund direct investment that started in the first quarter of 2013 continued in the second. Between April and June cash-constrained China Investment Corp. (CIC), usually an active direct investor, didn’t execute a single deal. CIC is concentrating on restructuring its portfolio. As we anticipated earlier in the year, its direct investment activity is severely constrained.

It appears that the Chinese fund will now focus on finding beta returns through passive investments in bonds and equities and chase alpha with the help of hedge funds, eschewing direct deals for the time being. Although CIC has expressed an interest in buying direct stakes in U.S. infrastructure assets, it has encountered political roadblocks in such investments and has yet to find a suitable target.

Asia-Pacific funds allocated mainly within their own region and in Europe. These funds invested in 14 deals in Southeast Asia for a combined $1.6 billion and three transactions in Europe totaling $810.7 million. India accounted for three deals and a total of $393.6 million.

The only Asian fund to invest in the Middle East was Singapore’s GIC with its $36 million stake in the initial public offering of Abu Dhabi–based health care provider Al Noor Hospitals Group on the London Stock Exchange. The other Singaporean sovereign wealth fund, Temasek Holdings, closed Asian funds’ sole North American deal by investing an estimated $85 million in Jacksonville, Florida–based online sports merchandise retailer Fanatics.

Middle Eastern sovereign wealth funds made five European investments, largely in institutional-quality commercial real estate that generates a return from rental income in Italy and the U.K. These deals totaled $839.5 million. Middle Eastern funds continued to find the U.S. a challenging market: The only two deals executed by funds from the region were the Kuwait Investment Authority’s purchase of an office building in Washington and an estimated $200 million investment in the Hudson Yards development project on Manhattan’s West Side.

Although sovereign wealth funds from the Middle East only completed two transactions in Oceania, those deals totaled $1.43 billion, the bulk of it from an investment of more than $1 billion in Australian ports by the Abu Dhabi Investment Authority (ADIA).

Norway’s Government Pension Fund Global (GPFG) invested the most in the second quarter of 2013, allocating a total of $2.3 billion. The fund is seeking to deploy 5 percent of its portfolio (currently about $36 billion) in real estate. Singapore’s Temasek continued to show confidence in China’s consumer market, plowing $1.7 billion into Chinese banks and consumer goods.

Q2 2013 Direct Investments by Fund

Source: Sovereign Wealth Center

ADIA and the Qatar Investment Authority (QIA) invested a total of over $1 billion each. QIA kept investing in high-end real estate assets in Europe, pouring $565 million into Italian properties. The Qatari fund has established a strong relationship with the Italian government through IQ Made in Italy Investment Co., which has given it preferred access to Italian assets. Italy’s luxury brands generate much of their income in emerging markets and are appealing targets for QIA, which hopes that this relationship will generate deal flow.

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