Global Pension Fund M&A Investment Drops Off Cliff in Q2

Global pension fund involvement in mergers and acquisitions fell off a cliff during the second quarter, when sponsors invested $740 million in M&A deals, a fraction of the nearly $14 billion invested the previous quarter and well below the $3.83 billion recorded during the year-ago quarter, according to S&P Global Market Intelligence.

Quarter-over-quarter, the cumulative value of deals with pension fund involvement plunged 94.7%, an abrupt decline after a solid first quarter of $13.95 billion in aggregate, S&P reported.

Q2 2023 was the lowest quarterly level of such investment since 2019 for pension fund sponsors, the firm reported.

Among the 10 largest M&A deals during the second quarter, private equity was an investor in five that involved pension funds. The biggest deal involving a pension fund was when Canadian pension fund OMERS Administration Corp. agreed to acquire a 20% stake in Toronto-based private equity firm Kilmer Van Nostrand Co. Ltd. for $303.7 million.

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The second largest transaction during the quarter was a $200 million funding round for Indonesia-based Multidaya Teknologi Nusantara PT, better known as eFishery, which provides a feeding solution for fish and shrimp farming. Private equity firms Temasek Holdings, SoftBank Investment Advisers, Swiss banking company responsAbility Investments, Northstar Advisors, Abu Dhabi Growth Fund and 500 Global invested in the round, as did Malaysian government pension plan sponsor Kumpulan Wang Persaraan.

The third largest deal during the quarter was Wuxi Huaguang Environment & Energy Group Co. Ltd.’s $41 million deal to acquire a 49% stake in China Resources GCL (Beijing) Thermal Power, which included an investment from Norwegian pension fund MP Pensjon PK.

Through the first half of the year, the technology, media and telecommunications sector drew the most investment from pension funds with $12.95 billion invested. The financial and energy sectors were a distant second and third, with $660 million and $320 million invested, respectively.

“Pension fund involvement in M&A appears to be on track for a flat-to-slight improvement in 2023 compared to a year earlier,” S&P Global’s Muhammad Hammad Asif and Umer Khan wrote in a note on S&P Global’s website, “though encouraging signs of cooling inflation and speculation that interest rate hikes are near the end could encourage a stronger second half.”