Sovereign Wealth Fund Leads PE Investment

(January 2, 2014) — GIC, one of the two sovereign wealth funds of Singapore, was has been named as the one of the biggest investors in private equity for 2013.

According to Indian investment research platform VCCircle’s calculations, GIC was among the top investors both in terms of the amount of invested, as well as the number of transactions sealed this year.

Investing more than $650 million in 2013, GIC devoted significant amounts of money to Indian private equity in particular over the past 12 months, ramping up its activity after opening an office in the region in 2011.

GIC was also noted for making contrarian bets on sectors like power and real estate, which have been out of favour with the broader investment market.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

But GIC’s favourite sector over last year has been India’s real estate: it partnered with Blackstone Real Estate Partners to acquire an IT park in Bangalore and also tied up with private equity powerhouse KKR to set up a real estate-focused non-banking financial company. It also partnered Singapore’s developer-investor Ascendas to invest S$600 million in Indian property.

GIC’s largest deal of the year was also agreed in India, acquiring 2.6% of private sector lender Kotak Mahindra Bank for $239 million, in what would be its single-largest deal during the year.

According to its own figures, approximately 28% of GIC’s assets are invested in Asia, up from 23% in 2008. This makes it the second largest geographical area in terms of investment, behind the Americas, which makes up 44% of the portfolio. Europe has seen the most drastic reduction, from 35% in 2008 to 25% in 2013.

The sovereign wealth fund appointed a new CIO in January 2013, Lim Chow Kiat, who spoke openly about wanting to take the fund in a new direction.

Having initially been created using the endowment model, Kiat introduced a new framework designed to define GIC’s risk and return drivers, its long-term investment objectives, and the responsibilities of the GIC board and management more clearly.

The revised policy portfolio now focuses on six core asset classes: developed market equities, emerging market equities, nominal bonds and cash, inflation-linked bonds, private equity, and real estate.

These asset classes represent the key systematic or market risks, and encapsulate the bulk of the risk and return potential of the GIC portfolio, all of which is actively managed. The active portfolio allows the GIC management to execute skill-based and opportunistic strategies, including the aforementioned pushes into private equity.

The passively managed reference portfolio meanwhile, based on a balance of 65% global equity and 35% bond market indices, defines the amount of risk the government is prepared to have GIC take.

Its annual nominalised rates of return up to March 31, 2013 were 12.8% over five years, 10.3% over 10 years, and 9.3% over 25 years.

(January 2, 2014) — Hedging out the risk of pension fund members living longer than expected had a bumper year in 2013, consultants Aon Hewitt has found.

Some £8.9 billion in longevity-hedging transactions were completed by UK pension funds in the last 12 months, breaking all previous annual records.

A clutch of large deals accounted for almost £8 billion of the total—engineering firm BAE Systems took £5 billion of the amount—with a few smaller transactions making up the rest.

Aon Hewitt indicated that this development was set to continue with a “strong pipeline” of longevity transactions waiting in the wings.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Despite concerns about the lack of a capital market for longevity risk being created, the consultants said reinsurers—the ideal partners to sit on the other side of a transaction—were becoming more comfortable in the space, which had helped increase volumes.

More generally, the pension buyout or risk-transfer market was also heading for a strong year.

Aon Hewitt said a record-breaking third quarter of activity had set the market on the way to at least nudging the £8 billion transferred in 2008.

There were three main reasons for this uptick in business, aside from improving solvency levels, Aon Hewitt said. Overseas companies have turned their attention to more tricky pension problems in the UK after sorting out simpler issues abroad and inflation-linking has come up the agenda for many pensions and buying out seems to some to be an effective and less costly outcome than other options. Finally, an uptick in merger and acquisition activity has made resolving pensions issues a priority in order to seem attractive on sale.

Continuing from 2012, the market in the UK is dominated by three main providers: Pension Insurance Corporation, Rothesay Life, and Legal & General. These companies collectively were responsible for 93% of 2013 business.