As we predicted in our last update, the third quarter of 2009 saw a significant uptick in SWF activity, both in terms of the number of deals and their value. In Q3 2009, SWFs undertook 25 publicly reported deals with a total recorded value of $25.3 billion, having only completed 11 deals with a publicly reported value of $3.5 billion in Q2 2009. Excluding China Investment Corporation’s (CIC’s) $19 billion recapitalization of the Agricultural Bank of China in Q4 2008, the most recent quarter represents the largest  quarterly deal value since Q1 2008 and the greatest number of publicly reported transactions since Q3 2008. Moreover, this does not appear to be simply a short-term trend. In Q3 we recorded a further 18 SWF investments totaling $4.3 billion that were either announced or pending regulatory approval.

Q3 2009 also saw a continuation of a trend we noted in our last update: that of SWFs investing in international markets. For the first time since the first quarter of 2008, the majority of SWF investment (88 percent) was in OECD markets, suggesting that overall SWFs’ confidence in the stability of the global economy is increasing and that they are seeking to take advantage of undervalued assets in  developed countries. However, some funds remain cautious, while others, particularly those from Dubai, are still feeling the impact of the financial crisis.

Unsurprisingly given the current economic climate, financial services—historically a SWF investment staple—was less attractive as a target sector, attracting only three deals valued at $2 billion. In contrast, engineering-related sectors such as automobiles and construction were more attractive; these sectors accounted for a total of six deals, valued at $11.7 billion. Natural resources were also targeted by SWFs in Q3 2009, while petroleum and natural gas and mining sectors accounted for three deals, valued at $6.8 billion.

The most active funds in Q3 2009 were CIC, which made five acquisitions with a reported value of $3.8 billion, and Abu Dhabi’s International Petroleum Investment Company, which undertook four deals publicly valued at $6.7 billion. The fund with the highest investment for Q3 2009 was the Qatar Investment Authority, completing deals valued at $11.7 billion.