2014 H1 - Private Equity

October 29, 2014

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In the first half of 2014, sovereign wealth funds shifted their private equity investments into more-volatile emerging markets. Allocations to private equity funds in developing countries climbed to about 43 percent of sovereign wealth funds’ total, according to Sovereign Wealth Center data, up from 25 percent in the first six months of 2013. Private equity fund investments in developed markets, though still larger at 57 percent, fell sharply from 75 percent in the first half of the previous year.

The strategies employed by the funds in the two categories varied too. Sovereign funds’ investments in emerging-markets private equity tended to be classic leveraged buyouts managed by established firms such as Hong Kong–based Affinity Equity Partners and London-based CVC Capital Partners.

A Spin Off of Funds

State-owned pools’ private equity fund investments in developed markets, by contrast, tilted toward venture and growth capital, which accounted for a third of their allocations to such funds, according to our data. Sovereign wealth funds are also targeting more-specialized areas. For example, they are aiming to profit from the shale gas boom in the U.S. and from new oil and gas extraction technologies, and they have engaged specialist managers like Apollo Global Management to tap the private debt markets.

Singapore’s Temasek Holdings provided the most notable private equity event for sovereign wealth funds in the first half of 2014. In April the state-owned investor launched Astrea II, a special-purpose vehicle comprising its holdings in 36 private equity funds that allows a broad base of institutional and retail investors to co-invest with Temasek. The funds spun off include those managed by London-based BC Partners and Equistone Partners Europe, Stockholm-based EQT Partners, Beijing-based JD Capital, Paris-based PAI Partners and Boston-based TA Associates. Astrea II is managed by Ardian, a Paris-based secondary private equity specialist.

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