China Investment Corp’s (CIC) $13.7 billion acquisition of warehouse firm Logicor tripled the total value of sovereign wealth funds’ (SWFs) M&A deals in the second quarter to $31.7 billion, just shy of a record set in the third quarter of 2016.
Adding to that, Qatar Investment Authority (QIA) was involved in the second biggest deal of the quarter, for an Australian utility, but it was unclear whether it would be as active overseas in coming months in light of a punishing diplomatic rift with its Gulf neighbors.
SWFs did 29 deals in the second quarter, down from 34 in the first when the total value was $9.9 billion, Thomson Reuters data showed. The bumper second quarter total was only slightly below the $32.1 billion achieved in Q3 2016.
The second quarter was boosted by a handful of megadeals, including Blackstone selling Logicor to CIC in Europe’s biggest ever private equity real estate deal.
“Logistics is the jewel in the crown – it’s a very trendy sub-group within real estate because it is connected with e-commerce,” said Javier Capape, a director at the Sovereign Wealth Lab research center at the IE Business School in Madrid.
“SWFs are long-term investors looking for disruption – they are looking for the new winners,” he said.
CIC was also involved in the third largest deal of the quarter, a $4.5 billion recapitalization of China Everbright Bank, of which it is the ultimate parent.
In total CIC completed six deals, in high-tech, healthcare and financials, while Singaporean SWF GIC, which has been on a buying spree for several quarters, did five deals, mainly in financials.
JP Morgan Asset Management’s head of international institutional clients, Patrick Thomson, said Asian funds in particular were becoming more active managers.
“We’re seeing much more dynamic asset allocation and much higher allocations to alternatives, including infrastructure and direct deals,” he said.
Investec Asset Management strategist Michael Power said that with oil prices still so low, there was less of a surplus for some of the oil-based funds to recycle: “So there’s an element of the trade-based SWFs taking advantage of the lack of competition.”
QIA was one of the more active Middle Eastern funds, participating in a consortium that bought a stake in Australian power distributor Endeavour Energy for $5.6 billion.
It also bought two offices in California for $352.8 million, in conjunction with real estate investor Douglas Emmett.
It was unclear whether QIA would be as acquisitive in coming months given the sanctions imposed by its neighbors.
“It’s difficult to assess – it will depend on whether they can reach an agreement in the short run,” said Capape. “I wouldn’t be surprised to see some refocusing in Qatar if the situation continues.”
Boston Consulting Group senior partner Markus Massi, based in the Middle East, said no SWF could afford to sit on the sidelines.
“Also there will be deals that have been done that have to be followed through, and deal flow from partnership agreements with others that they want to participate in. You can’t exit the market entirely. You might want to reduce the ticket price.”
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