Sovereign wealth funds are back in the market after the financial crisis, with growing numbers of transactions and a return to financial sector investment, but the pattern of their investing has changed significantly.
A new study on the activities of some 33 sovereign wealth funds (SWFs) has found that the government-funded vehicles are making smaller transactions than before and have eschewed taking stakes in international financial institutions in favour of emerging markets.
Their activity has also remained far below what it was in 2007 and 2008 as the global crisis took hold.
Monitor Group-Fondazione Eno Enrico Mattei found that in the first half of this year, 16 of the 33 funds the two research groups track made 92 reported investments for a total value of $22.2 billion.
That was double both the number and value of transactions in the first quarter of 2009.
But while it was also a 20 percent increase in the number of deals made in the second quarter of 2009, showing a continued recovery in activity, the value of the deals fell by 40 percent.
“It thus appears that SWFs continued a trend that we identified at the end of last year — that of making more, but smaller individual investments and (generally) taking smaller shareholdings,” the researchers said.
They suggested that some of this may reflect a caution among the investors about a potential double-dip recession in major economies.
Caution about the state of developed market finances may also have been behind a shift in financial sector investments. The study noted that there were 19 investments with a value of $7.4 billion in the first quarter of this year, a reversal of direction.
But the investment pattern was different from 2008 when SWFs took large equity stakes in international banks.
The new trend is towards diversifying exposure to emerging markets or infrastructure development via private equity or investment funds.
In terms of individual SWFs, the main activity in the latest study period was carried out by three of the world’s largest wealth funds — Singapore’s Temasek Holdings, the China Investment Corporation (CIC) and the Qatar Investment Authority (QIA).
Temasek had 20 deals and the other two 14 each.
The researchers found that CIC’s investments in the half totalled $7.3 billion and were primarily in natural resources and private equity. QIA invested $5.5 billion, most notably in Singapore’s Raffles Hotel and London’s Harrods department store.
Temasek’s $2.5 billion worth of investments were generally small and concentrated on natural resources in India, Chile and South Africa.