x Abu Dhabi, UAEWednesday 24 January 2018

Wealth funds invest $22bn

Publicly reported sovereign wealth fund investments doubled to $22.2 billion in the first half of the year.

The Qatar Investment Authority bought the British luxury store Harrods this year.
The Qatar Investment Authority bought the British luxury store Harrods this year.

Publicly reported sovereign wealth fund investments doubled to US$22.2 billion (Dh81.54bn) in the first half of the year, driven by stronger activity in Europe and growing interest in financial services and energy assets.

State-owned investment vehicles recorded 92 investments in the first half of the year compared with just 39 worth $11bn in the first half of last year, according to a new report from the Monitor Group, a consultancy based in London.

"The global environment of the first half of 2010 was far better than that of the same period a year earlier," said the report, compiled by four Monitor Group researchers. "After withdrawing from the market during the first half of 2009, [sovereign wealth fund] investment activity picked up."

Sovereign funds control about $2.5 trillion of assets, according to Monitor Group estimates, making them a force to be reckoned with on the global investment scene. Such funds typically represent pools of savings built up from trade surpluses and natural resources exports.

The Gulf contains some of the biggest energy-revenue-fed sovereign wealth funds in the world, including the Qatar Investment Authority (QIA), the Kuwait Investment Authority and the Abu Dhabi Investment Authority (ADIA).

Sovereign fund investment activity slowed following a flurry of headline-grabbing plays in major western financial institutions after the global financial crisis.

Funds such as ADIA, the QIA and the Government of Singapore Investment Corporation injected billions of dollars into lenders such as Citigroup and Barclays to help shore up their balance sheets in 2008, but the size of publicly announced deals has since tailed off as the funds liquidated those investments, occasionally booking large profits.

While investment activity increased compared with the first half of last year, the Monitor Group report found the value of deals in this year's first half fell substantially from the $58bn reported in the second half of last year.

But the number of reported investments increased by about 20 per cent compared with the second half, an indication that sovereign funds are deploying capital more frequently but in smaller chunks.

Among the biggest targets for sovereign funds in the first half was the financial services sector, which attracted $7.4bn of investments. The energy and mining sectors brought in $4.3bn and utilities saw another $4.3bn of investments.

Within the financial services sector, the Monitor Group noted a shift away from taking large equity stakes in banks - the hallmark of funds' activities after the global financial crisis - and towards putting money in private equity funds.

Their interest in energy and mining, the analysts said, was "part of a wider trend of investments in natural resources evident this year, driven largely by the emergence of China and 'its insatiable need for resources'".

About three quarters of the value of sovereign funds' disclosed investments were in developed countries in the first half, reflecting renewed interest in European and North American assets, the report said.

Those deals included the QIA's purchase of Harrod's, the UK luxury retailer, for $2.2bn in May and ADIA's purchase of 15 per cent of London's Gatwick Airport in February for $196 million.