Sovereign Wealth Fund Transactions Highlight Global Recovery and New Approaches to Risk Management in Investing
Fondazione Eni Enrico Mattei and Monitor Group release 2009 Annual Sovereign Wealth Fund Report. The report shows that SWF investment numbers increased with focus on energy, natural resources, engineering and technology sectors.
May 18, 2010 – FEEM and Monitor Group, one of the world’s leading advisory and consulting firms, today released their annual Sovereign Wealth Fund (SWF) report, entitled "Back on Course: Sovereign Wealth Fund Activity in 2009", which analyzes SWF transactions during the year.
"While the number and value of SWF transactions for the first two quarters of 2009 was the lowest for more than half a decade, by Q3, SWFs had realigned investment strategies with long-term goals, rethinking their approach to risk," said William Miracky, a senior partner at Monitor Group. "We’re seeing an evolution in the behavior of SWFs; for example, for the first time we saw funds invest jointly to share risk while maintaining market exposure to a diverse range of asset classes and sectors, a trend we expect to continue."
Analysis of SWF activity in the second half of 2009 found a resurgence in spending. Q3 and Q4 accounted for 85 percent of the 113 publicly reported transactions made by SWFs during the year, worth 85 percent of the overall value of $68.8 billion.
During 2009 the sectors and geographies in which SWFs invested have shifted in line with current global economic realities. In addition to joint ventures, SWFs showed a strong preference for energy, natural resources, and engineering- or technology-based industries, rather than the financial and real estate sectors. SWFs also demonstrated a greater tendency to invest at home in 2009, primarily at the beginning of the year. However, they have not retreated, and many have maintained an appetite for Western markets, especially in Europe, where funds have sought to take advantage of underpriced, high-quality assets.
"As we saw in the Q3 report, SWFs have emerged with long-term strategies around investments, focusing on a wider range of markets and avoiding the financial sector," said Bernardo Bortolotti, Executive Director of FEEM. "Also as we predicted, the funds have picked up investment pace again, but are approaching risk differently having learned from the losses they suffered in 2008."
Key Findings and Trends from the report:
- During 2009, funds in the Monitor-FEEM SWF Transaction Database executed 113 deals worth $68.8 billion. This represented a sharp break in the trend of increasing SWF activity, with both the number and value of investments about 40 percent below totals in 2008.
- SWFs invested considerably less in financial services in 2009 than in 2008, dropping from 49 publicly reported investments valued at $81.7 billion to just 28 deals with a reported value of only $10.2 billion. They were also more cautious in real estate acquisitions, with activity dropping by more than half. Instead, they looked to invest in a wider range of sectors, most notably in energy, natural resources and engineering- or technology-based sectors. This is very similar to the patterns characterizing SWF behavior before 2005, although the sectors of interest reflect current economic realities.
- Continuing the trend from 2008, Europe remained the largest market for SWF investments in terms of recorded value, despite the financial crisis. European targets accounted for 42.5 percent by value of 2009’s publicly reported SWF investment ($29.2 billion), about a third of the reported value from 2008. SWFs also invested more widely in 2009, with investment in Latin America, sub-Saharan Africa and Non-Pacific Asia doubling in real terms to $3 billion.
- Once more Asia Pacific accounted for the largest number of investments (32) in 2009. Europe was the second most popular region for SWFs (29) transactions. MENA overtook North America in terms of investment volume, with 21 deals against North America’s 19, most of which took place in the final quarter of the year.
- The most active funds were the China Investment Corporation and the Government of Singapore Investment Corporation, making 17 and 18 publicly reported investments, respectively. However, the largest spending fund was the Qatar Investment Authority, which undertook 14 publicly reported investments valued at over $32 billion.
- The inhospitable global economy at the end of 2008 manifested itself in our data in Q1 and Q2 2009—both quarters were the lowest investment volumes since 2005 and 2003, respectively. SWF activity picked up during the second half of the year, with Q3 and Q4 accounting for 85 percent of publicly reported expenditure and two-thirds of the total number of deals.
Read the press release in Italian language.
"Back on Course: Sovereign Wealth Fund Activity in 2009" is the latest in a series of reports and updates documenting and assessing SWF activity. The report includes not only data and a review of the year but also commentary by outside experts including Ashby H. B. Monk (University of Oxford), Vanessa Rossi (Chatham House), Steffen Kern (Deutsche Bank), and Rachel Ziemba (Roubini Global Economics), as well as by Monitor’s Victoria Barbary. All reports are available at www.monitor.com.