Sovereign investors favour Real Estate and Technology Sectors15 February 2018
There are currently 92 active sovereign wealth funds, with assets totaling 7.5 trillion dollars
Real estate and technology are the preferred sectors for investment by sovereign wealth funds. These two sectors, coupled with finance, made up some 66% of their investments in 2017 according to the Sovereign Wealth Funds 2017 report drawn up by IE Business School’s Sovereign Wealth Lab and IE Foundation in collaboration with ICEX-Invest in Spain.
The study highlights China as the country with most sovereign wealth assets, with four of its funds among the top 10 worldwide. The largest single sovereign wealth fund is, however, still European. In 2017 Norway’s sovereign wealth fund broke the trillion dollar barrier in terms of investments to become the undisputed leader.
Also of note is the fact that in 2017 Saudi Arabia decided to enter the sovereign wealth table in a big way, by redefining its Public Investment Fund (PIF) and committing over 40 billion dollars to the creation of the largest venture capital fund in the world. The report also points out that last year the China Investment Corporation carried out the largest deal in the history of the sector with the purchase of logistics giant Logicor, for 14 billion.
These are some of the conclusions of the “Sovereign Wealth Funds 2017" report prepared by IE Business School and ICEX-Invest in Spain, which examines key trends of these investment vehicles throughout 2016 and the first half of 2017.
The report was presented in London on Wednesday, February 14, by Francisco Javier Garzón, CEO of ICEX España Exportación e Inversiones, and Javier Santiso, President of the Sovereign Wealth Lab at IE Business School.
“The sovereign wealth funds industry is increasingly sophisticated and focused on long-term investment,” says Javier Capapé, director of IE’s Sovereign Wealth Lab and one of the authors of the report. “This year, funds have tried to harness long-term trends by investing in logistics real estate, student housing, and deals linked to climate change.”
“Sovereign Wealth Funds have also been part of the increased interest shown by international investors in the Spanish market. Actually, for the last few years they have been investing extensively in many different industries and activities across the Spanish economy and they have already assets under management worth over €36 billion” according to Francisco Javier Garzón, CEO of ICEX España Exportación e Inversiones.
A different kind of commitment to real estate
The real estate segment is closely linked to the focus on the development of e-commerce, which will fuel demand for the warehouses and industrial hangars that form the real backbone of world trade. A change is taking place in the form of a shift from investment in skyscrapers and hotels to other types of real estate assets.
Another niche that has attracted the interest of sovereign wealth funds is that of student housing. The funds of Singapore and Abu Dhabi are building and buying student residences on university campuses in countries like the US, UK, and Germany.
Another emerging trend is that of so-called “Green assets.” Although the movement of the funds of Norway and New Zealand, who have divested from companies with high pollution levels, have attracted the most comment, other funds have invested in renewable energy projects, infrastructure, sustainable agriculture, and efficient energy startups.
Renewed interest in sovereign wealth funds in Spain
The Spanish economy is going through an expansive economic cycle with growth rates at higher levels than the European average, fueling levels of confidence in Spain among the international community. and driving international private equity and venture capital investments to record levels. It was in this scenario that transactions of major strategic value were carried out by sovereign wealth funds in new areas and activities at the end of 2016 and 2017.
Some of the more noteworthy operations took place in the finance sector, including major investment by Singaporean fund GIC, together with Hellman & Friedman, in Allfunds Bank. In the energy sector Abu Dhabi Investment Corporation, together with JPMorgan, Swiss Life and Covalis, acquired Naturgás, and in the manufacturing sector, Dubai Ports World acquired Reyser, which provides services to12 Spanish ports, while Oman’s SGRF acquired a stake in Escribano Mechanical and Engineering.
Today almost all sectors are on sovereign wealth funds’ radars. In Spain they have accumulated investments totalling 36.4 billion euros, including fixed income. Although sovereign wealth funds have arrived on the scene in Spain relatively recently, and deals were scant up until 2010, it can be said that it is now a key destination in Europe for sovereign wealth funds.