Thursday, September 5, 2013

Sovereign Investments

In my recent research I came across few of the investments climates across the globe. Flow of fund has increased and different asset classes and segments are being chosen for investments. We all know that European economy is struggling currently with its austerity measures but at the same time it is now one of hottest land on earth for investments. Sovereign wealth funds are finding various segments of investments into Europe. At the end of 2011, sovereign-wealth funds’ assets under management amounted to $3 trillion, following 237 direct investments worth $81 billion that year. Some experts even estimate SWFs’ assets to be worth $6 trillion. In fact, of the seven SWFs that control more than two-thirds of all SWFs’ assets, three are from Asia (one from China and two from Singapore) and three are from the Middle East (Abu Dhabi, Kuwait, and Qatar). European countries rank first among hosts for SWF investments, which accounts for 40 percent of the total value of deals in 2011. The United States, accounts for less than 10 percent.   

There have been a significant drop in SWF after the debacle of 2008 but faced more problems after the debacle of Euro zone economy. The Chinese Investment Corporation’s biggest investment last year was a 30 percent ($3.2 billion) stake in the gas and oil exploration and production sector of the French energy giant GDF Suez. Furthermore, SWFs have comparative advantages over other kinds of institutional investors. Unlike insurance companies and pension funds, they have no long-term debt or future payment obligations. And, as public investors, they are likely to have a better understanding of investment projects that depend on public policy. Given these advantages, SWFs play a large – and growing – role in infrastructure finance. Well after a down-slide of an economy if proper investments and new alternatives are not being taken up then that economy hardly finds any growth over the long term. Opportunities created in recession times needs to be nurtured for the long term growth. It like just a replacement of old assets with new ones. In 2011, SWFs invested $35.2 billion in financial services, $13.4 billion in property, $13.2 billion in fossil-fuel resources (mainly oil and gas), $6.5 billion in infrastructure and utilities, and $3.4 billion in aircraft, car, ship, and train manufacturers. Given that SWFs’ primary objective is to transfer wealth to future generations.

Well GIC Asset Management, an arm of Singapore's more than $100 billion sovereign wealth fund is aggressively inclined towards investments in Europe. In the same lines Queensland Investment Corp., Brisbane the A$70 billion (US$65.8 billion) is looking aggressively for investments in europe.  Private equity fundraising is on the move backed by recovering of the financial markets followed with healthy business growth for long term. Globally, fundraising hit $122 billion in the second quarter, the highest quarterly level since 2008. European fundraising – among the hardest hit by the crisis – reached €12.7 billion in the second quarter, more than twice the quarterly average of 2012.



Source: Invesco Global Sovereign Asset Management Study 2013
This shows clearly the appetite for investments in euro zone economy. Demand from the likes of California Public Employees’ Retirement System, California State Teachers’ Retirement System and Teacher Retirement System of Texas, which manage pension fund money for workers in two of the US’s largest and richest states, is offering evidence of more optimism about the economic outlook in Europe and the future of the euro zone.

 In other parts of the world we find that the Pension Fund Global, funded by the country's oil and gas sector, is worth some NOK4.55trn (€577bn) are looking aggressively for investments. The fund has been branching out into property assets. Yesterday it announced a $684m deal to buy 45% of Times Square Tower in New York from Boston Properties. Sovereign investors were increasingly interested in private equity and property, although their preference is often for in-house or co-investment, rather than via funds.  In my research I find that their have been a dramatic change in the investment pattern in sovereign funds. Alternative assets and core assets investments  like private equity, real estate, infrastructure, hedge funds and commodities, Core asset classes - as equities, fixed income and cash their have been a change in pattern. The investment climate is changing and similarly the SWF segment. Today Some SWFs in the Middle East and Asia seem to understand the risks associated with carbon-heavy investment portfolios, and are ready to work together to create a platform to finance resource-efficient, low-carbon, environmentally friendly infrastructure projects

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