Sovereign wealth funds invested more than $3 billion in unlisted technology companies in 2018, the highest level in three years, research showed on Thursday, as public markets shrank due to fewer initial public offerings and big share buybacks.
The renewed push into private markets, via investments in segments like software, fintech, biotech and healthcare, is part of a broader trend of wealth funds viewing private companies as a less speculative bet than they used to be.
In a turnaround of a trend noted the previous year, sovereign wealth funds' direct investment in unlisted firms rose by 17 percent to 147 in 2018, according to the 2018 International Forum of Sovereign Wealth Funds (IFSWF) Annual Report.
Such investments were often made jointly with both asset owners and asset managers, the report showed.
Wealth funds poured $3.4 billion into unlisted technology firms across 44 deals in 2018. They also ploughed money into private healthcare firms, completing 40 deals, up from 21 in 2017.
Many tech firms have steered clear of following the likes of Uber Technologies with initial public offerings as they struggle to make a profit, instead favouring raising money from institutional investors, private equity and venture capital firms.
"These are precisely the types of companies in which SWFs are looking to invest, as they have the potential to generate high returns in a generally low-return environment," the report said.
A high number of share buybacks also dampened opportunities for wealth funds to participate in public market activity. More than $1 trillion buybacks were completed by large U.S. companies in 2018, led by asset-light firms such as Apple, Alphabet, Cisco, Microsoft and Oracle, to bolster their share prices and earnings per share, the report noted.
With public markets retreating, wealth funds sharpened their focus on venture and growth capital financing rounds to find higher returns.
The report also noted that wealth funds' commitment to early-stage firms doubled from the previous year, while the number of transactions at the growth-capital stage rose by over 40%.