Dealmaking gets tougher for SWFs
> Sovereign wealth fund investment activity at turning point amid rising protectionism: Report
LONDON: Sovereign investors are facing a tougher environment for dealmaking as rising protectionism threatens to curb inward investment and stunt trade, suggesting private market activity may have plateaued, a co-author of a report out yesterday said.
In recent years sovereign wealth funds (SWFs) have ramped up their exposure to real assets, snapping up iconic skyscrapers in London and Manhattan, luxury hotels and multiyear concessions for Australian ports.
The aim was to tap the “illiquidity premium” on offer for investors able to tie up capital for longer as an alternative to low-yielding government bonds.
But Bernardo Bortolotti, director of the sovereign investment lab at Bocconi University and co-author of a report showing a slowdown in SWF real estate and infrastructure investment in 2017, said the high watermark for private dealmaking had passed.
This is partly because some Middle East funds have rebalanced their portfolios towards more liquid assets such as equities to accommodate drawdowns from cash-strapped governments needing to plug budget gaps. But it’s also because the United States is locked in an increasingly bitter dispute with its key trading partners, potentially reducing trade and global economic growth.
Bortolotti warned that if exports fell, SWF growth rates and activity would also slow: “They still have US$6 trillionplus (RM24.3 trillion) to deploy but we have a structural break in the accumulation of assets,” he said.
“We are at a turning point ... unless Asia can create an area of regional free trade to replace the intercontinental flows then the same issues that are emerging now in the Gulf could also emerge in Asia.”
In July, Singapore’s GIC, a big sovereign investor in real assets, said it expected lower long-term returns in an uncertain investment climate. This echoed comments from peer Temasek which is looking to temper the pace of its investments as trade tensions ratchet up. China’s CIC also expressed concerns.
According to the SWF investment activity report produced in association with the International Forum of SWFs (IFSWF), the number of property deals fell to 42 in 2017 from 77 a year earlier while infrastructure investments fell to 28 from 33.
Combined deal value fell to US$23.2 billion in 2017 from US$25 billion.
SWFs are finding it more difficult to find suitable properties in the commercial and office space – traditionally favoured targets – as more investors have entered the market, driving up prices.
“There’s more competition from Chinese insurers and large Asian institutions looking at core real estate in London and New York,” said Victoria Barbary, IFSWF director of strategy and communications. – Reuters