Sovereign Wealth Fund News Roundup: SWFs Eye Big Hotel Deals

March 06, 2015 by Loch Adamson

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SWFs Double Down on Hotels

Sovereign wealth funds’ investments in the hospitality sector have dominated the headlines this week. On Monday, the British press reported that the Abu Dhabi Investment Authority (ADIA) had offered an eye-watering £1.6 billion ($2.4 billion) for a trio of landmark London hotels — the Berkeley, Claridge's and the Connaught — owned by the Maybourne Hotel Group. At a reported £3 million per room, the offer would represent one of the highest per-key prices ever paid. But ADIA will face competition, with other Middle Eastern investors believed to have submitted rival bids.

It’s not just British properties that are attracting interest from sovereign wealth funds. The Sovereign Wealth Center has observed a boom in the Japanese hospitality sector in 2015, and hotels in emerging markets are drawing capital from state investors too. On Tuesday, the Oman Investment Fund announced it would develop a five-star luxury resort in the town of Mirbat in the south of the country, to be managed by Singapore-based international leisure group Alila Hotels and Resorts. And in Africa, Angola’s Fondo Soberano de Angola (FSDEA) has confirmed its plans to invest in a chain of business hotels across the continent. FSDEA is the second African fund to attempt the strategy: under the Gaddafi regime the Libyan Investment Authority built the Laico Hotels and Resorts chain during the 2000s to spread the country’s influence across the continent.

European Infrastructure Boom

European infrastructure continues to attract strong interest from sovereign wealth funds. ADIA is reportedly rivaling Gingko Tree Investment, a unit of China’s State Administration of Foreign Exchange (SAFE), for the Madrid-based gas distribution company Madrileña Red de Gas. The business, which is being sold by financial services giant Morgan Stanley, could fetch as much as €1.8 billion ($2 billion).

Despite high valuations and fierce competition, the trend for infrastructure deals looks set to continue for some time yet. In an exclusive interview, Abdiel Santiago, technical secretary of the Fondo Ahorro de Panama (FAP), told Sovereign Wealth Center that "government inaction" had led to a "big opportunity" to finance infrastructure projects in developed markets over the longer-term. According to Standard & Poor’s Ratings Services, the so-called infrastructure gap — the difference between investment needs and public spending on infrastructure — will amount to some $500 billion each year between now and 2030. On the whole, however, sovereign wealth funds prefer to invest in established infrastructure assets.

Governance Under Scrutiny

Sovereign wealth fund governance has also been in the spotlight this week. Speculation continues about the shake-up at the China Investment Corp., following Deputy COO Fan Yifei’s appointment as the new vice-governor of the People’s Bank of China, the central bank. Some talk about a state-sanctioned power grab at CIC. Others praise smart business planning.

On Tuesday, Singaporean state investor Temasek Holdings was forced to rebut claims that changes in the city state’s budgetary framework would prompt a shift in the fund’s strategy. Reports had suggested the new scheme would allow the government to dip into Temasek’s coffers more readily, and that the organization would need to hold more liquid assets as a result. In a statement on its website, Temasek strongly denied that it would have to change its investment strategy.

Russia’s government, on the other hand, is dipping into its sovereign wealth funds at will as it tries to prop up its ailing economy, which has been hit by the dual blow of Western sanctions and the collapse in oil prices. We learned this week that the value of Russia’s Reserve Fund, a stabilization vehicle, dropped by the greatest amount in more than four years in January, as the Ministry of Finance used its maximum yearly allowance of 500 billion rubles ($8 billion) to cover a widening budget deficit.

Nigeria, too, has been hit by the crash in crude prices, but Uche Orji, CEO of the Nigeria Sovereign Investment Authority (NSIA), said this week that the government will resist the temptation to draw on its sovereign wealth fund — at least until it grows bigger.

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