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.