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.
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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