2nd Quarter 2013 - Geography

September 27, 2013 by Loch Adamson

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In the second quarter of 2013, developed markets accounted for $5.3 billion, or 60 percent, of all sovereign wealth funds’ foreign direct investments, $3.2 billion less than in the previous quarter.

Europe is still sovereign wealth funds’ favorite region: It was home to nine deals with a combined value of $3.2 billion (37 percent of the foreign investment total). Tangible real estate assets were sovereign wealth funds’ preferred targets in this region. For example, Norway’s Government Pension Fund Global (GPFG) paid $1.6 billion for 50 percent of the European commercial property portfolio held by San Francisco–based real estate investment company Prologis.

The other major European transaction was Temasek Holdings’ $500 million purchase of a 10 percent stake in London-based financial information firm Markit Group. This deal was the latest in a string of European acquisitions for the Singaporean fund, which is showing renewed interest in Europe and North America for the first time since the financial crisis and has opened new offices in London and New York.

Q2 2013 Foreign Direct Sovereign Wealth Fund Investments by Geography

Source: Sovereign Wealth Center

In the second quarter two sovereign wealth funds invested in the U.S.: Kuwait Investment Authority (KIA) and Temasek, which closed just three deals, with a total value of $579 million. KIA bought premium real estate assets; Temasek continued to exploit secular trends in emerging-markets growth and technology use, contributing to a $170 million fundraising round by Jacksonville, Florida–based online sports merchandise retailer Fanatics. Temasek was joined by Hangzhou, China–based e-commerce giant Alibaba Group, in which it is a major investor.

Sovereign wealth funds’ foreign direct investments in BRICS countries totaled more than $3.3 billion, but a single deal accounted for half of that sum. GPFG; Qatar Holding, a unit of the Qatar Investment Authority; and the State Oil Fund of the Republic of Azerbaijan (Sofaz) invested almost $1.7 billion in a share issue by St. Petersburg, Russia–based VTB Bank (which along with its subsidiaries forms VTB Group).

Temasek also raised its stakes in major Chinese banks and insurers by more than $890 million, according to our data. The Singaporean fund appears to be the only sovereign wealth fund that is still bullish in non-BRICS emerging markets, accounting for $198 million of a meager $235 million in emerging-markets investment.

All sovereign wealth funds’ investments in the BRICS and other emerging markets were in Asia. Funds didn’t make any direct allocations to Latin America because investors are concerned about the region’s slowing growth and political instability in Brazil, where big street protests erupted in May.

Domestic Investments

The Sovereign Wealth Center recorded six domestic investments totaling $2.4 billion by sovereign wealth funds in the second quarter. That’s little changed from the $2.3 billion recorded in the previous quarter.

Australia’s Future Fund made the most significant investment with its A$2 billion ($2.1 billion) acquisition of the Australian Infrastructure Fund (AIX), managed by Melbourne-based Hastings Funds Management. Major public pension fund AustralianSuper is contesting part of the transaction in court, claiming that it should have had preemptive rights to raise its stake in Perth Airport, which was included in the assets acquired by the Future Fund.

Elsewhere, sovereign wealth funds’ domestic investments focused on strengthening their countries’ consumer and financial services industries. Malaysia’s Khazanah Nasional partnered with Toronto-based financial services firm Sun Life Financial to acquire 98 percent (49 percent each) of Kuala Lumpur–based insurers CIMB Aviva Assurance and CIMB Aviva Takaful from CIMB Group, while Temasek participated in the capital-raising by local Tiger Airways Singapore to repay debt and help fund the airline’s operations in Indonesia and the Philippines.

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