SWFs sidestep fund managers with more direct deals

12 August 2014   Category: News, Asia, China, Global, Singapore   By Daniel Shane

The world’s sovereign wealth funds (SWFs) are allocating the highest volume of assets via direct deals and co-investing since the global financial crisis, research showed, as the mega-rich institutional investors increasingly bypassed fund managers.

A report from the SWF Institute showed that direct deals and transactions by SWFs topped US$50.02 billion in value during the first half of 2014, or 23.1% higher than the equivalent period a year earlier.

This was the highest first half on record since the first six months of 2008, which yielded $51.05 billion worth of direct investment, much of which was attributable to banking bailouts, the SWF Institute said.

Singapore led the way as the nation whose SWFs acquired the most in terms of value of assets via direct investments, accounting for $21.21 billion worth of deals during the first half.

The acquisition of a 25% stake in health and beauty retailer AS Watson for $5.7 billion by Temasek Holdings was the most notable example of direct investment during the period. Earlier this year, Temasek also expanded its investment capabilities with the opening of a dedicated New York office.

The SWF Institute highlighted China and the United Arab Emirates as another two countries whose wealth funds had been particularly active in the direct investing space. The latter’s Abu Dhabi Investment Council, for example, recently aligned with Vitol SA to buy Shell’s Geelong oil refinery, as well as its service station network in Australia.

The most targeted sector for direct investing by SWFs during the half was financial services, accounting for $12.9 billion worth of deals, followed by consumer discretionary at $9.64 billion, and consumer staples at $7.37 billion.

There has been evidence of several large SWFs and pension funds beefing up their internal expertise already this year. In May, Abu Dhabi Investment Authority appointed BP Group Chief Economist Christof Ruhl as its first global head of research. The Government of Singapore Investment Corporation in 2014 opened its first Brazil office in Sao Paulo, where it led a consortium of investors that placed $170 million into local ecommerce firm Netshoes.