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Chemical, consumer and e-commerce sectors: priority investment destinations for sovereign funds in 2018

21 /03 /2019 Business

There are currently nine sovereign funds in operation around the world, with joint assets of some $8 trillion, according to Sovereign Wealth Funds 2018.

Real estate has been the main investment choice for sovereign funds over the last three years. In 2018, large-scale operations in the chemical, consumer or electronic commerce sectors overtook bricks and mortar as a destination for sovereign investment.

The sector with the highest number of operations during the past year is technology, with 2018 setting a record for sovereign funds investing as venture capital funds and with venture capital.

 

Technological focus: fintech, cybersecurity or artificial intelligence

Sovereign wealth funds participated in 77 rounds of technology-focused financing, more than one operation per week, investing mainly in the United States and China, but also in India, the United Kingdom and Singapore. By sectors, biotech, fintech, mobility, artificial intelligence, cybersecurity and cloud computing companies attracted the most sovereign fund wealth investment.

This trend is part of a mature investment strategy by sovereign wealth funds, which is increasingly diversified by sector and by asset class.

 

Co-investment

Sovereign Wealth Funds 2018, prepared by IE University in collaboration with ICEX-Invest in Spain, provides an exhaustive analysis of sovereign funds’ co-investment over the last decade. The main conclusion is that co-investment is not easy: the capacity required to carry it out explains why just 22 of the 91 sovereign wealth funds in the world have implemented large-scale co-investment operations in the last decade.

A good example of sovereign co-investment is RDIF. This Russian development fund has signed agreements with more than a dozen sovereign funds, from Qatar and Kuwait to China, South Korea or Turkey. RDIF has managed to attract or commit $40 billion into Russian companies since its creation eight years ago. RDIF is the ideal sovereign co-investment model: a public entity is a catalyst to attract foreign sovereign capital investment and then channels it to domestic companies. This has been replicated in Italy, France, Ireland and more recently in Spain with the creation of the Spain-Oman Private Equity Fund (SOPEF), still in the investment phase.

In addition to co-investment between sovereign wealth funds, the report looks at the “friends of the sovereign funds” among which are large insurance groups, alternative asset managers and, often, their Canadian pension fund colleagues, with whom they share public property, a long-term investment horizon and an interest in large-volume illiquid assets.

 

Green Assets

Green assets are an emerging trend already noted in last year’s report that continue to develop. In December 2017, six sovereign funds created the One Planet Group with the mission of accelerating the integration of risks and financial opportunities linked to climate change in the management of large groups of assets. Paradoxically, five of the six founders of this working group are sovereign funds fed by oil and natural gas exports.

 

Sovereign Wealth Funds 2018 Report

Sovereign Wealth Funds 2018 was prepared by IE University and ICEX Invest in Spain, which analyzes the behavior and main trends of these investment vehicles throughout 2017 and the first half of 2018. The report was produced by the newly created Sovereign Wealth Research, a program of the IE Center for the Governance of the Change (CGC) with the support of the IE Foundation.

The report will be presented today in London by María Jesús Fernández, Executive Director of Invest in Spain, and Jaime de Aguinaga, Vice Dean of IE University’s School of Global and Public Affairs.

“Sovereign wealth funds are no longer a mystery.”

“Sovereign wealth funds are no longer a mystery. When I started researching these investment giants a decade ago, few people had heard of the Qatar Investment Authority, Abu Dhabi Investment Authority or China Investment Corporation. By the end of 2018, these same funds, and 88 others, had $8 trillion dollars under management. To put that in context: the GDP of the United Kingdom, France, Canada and Spain add up to $8 trillion dollars,” explains Javier Capapé, director of Sovereign Wealth Research at IE University and one of those responsible for the report.

“Sovereign wealth funds increased their participation in Spanish companies and assets during 2017 and the first half of 2018. The total accumulated investment of these sovereign funds exceeds more than $40 billion for the first time, having increased their investment by $1.2 billion euros. euros since the last published report. For the second year in a row, these investments exceed one billion, demonstrating the interest of these investors in the Spanish economy”, highlights the Executive Director of ICEX-Invest in Spain, María Jesús Fernández. “We are happy to note that the work we launched seven years ago confirms our initial perception that sovereign funds were going to be a prominent player in the global and Spanish economy.”