Sovereign funds prefer tech, realty

In recent years they have raised exposure to unlisted assets in pursuit of higher returns

Technology and real estate investments led dealmaking by sovereign funds in 2016 and the first half of 2017 according to a report published on Wednesday, with six funds accounting for over 70 per cent of transactions.

Sovereign wealth funds (SWFs), which reinvest surpluses from commodity exports or trade, have about $7.5 trillion (Dh27.5 trillion) under management globally.

In recent years they have increased their exposure to unlisted assets in pursuit of higher returns, although some funds are now hitting upper limits on their allocations.

The IE Business School’s latest annual Sovereign Wealth Funds Report showed dealmaking remains concentrated among a handful of key players, because it requires large specialist teams to identify, assess and execute transactions.

“This expertise in private markets and assets required to invest abroad and deploy large sums of capital directly is an entry barrier for other SWFs,” said Javier Capape, co-author of the report and a director at the IE Business School’s Sovereign Wealth Lab.

Temasek, a Singapore stateowned investment company, accounted for 101 deals, or 30 per cent of the total over the 18-month period. Singapore’s SWF GIC managed 63 deals, or 19 per cent.

Together with Abu Dhabi Investment Authority, Qatar Investment Authority, the Ireland Strategic Investment Fund and China Investment Corporation (CIC), they accounted for over 70 per cent of the acquisition count.

Technology was the most popular sector, accounting for 26.1 per cent of total transactions in the first half of 2017, up from 24.3 per cent in 2016.

More SWFs are sinking money into tech start-ups in an attempt to protect their holdings in mature sectors from new companies such as Airbnb and Uber. Artificial intelligence and virtual reality have also attracted interest.

Real estate accounted for 23.9 per cent of deals in the first half of 2017, up from 21.5 per cent in 2016. CIC’s acquisition of pan-European warehouse group Logicor was the biggest deal in the first half of 2017, worth $13.8 billion.

Logistics companies are considered well-placed to benefit from the growth of companies like Amazon, which use massive warehouses as distribution hubs.

Student housing and highquality office blocks also remained popular with SWFs.