Survey Shows SWF Acquisitions Double in H1, Reflecting Confidence in Global Markets

(October 21, 2010) — The number and value of acquisitions by sovereign wealth funds doubled in the first half of 2010 compared to the same period the previous year, according to a report by the Monitor Group and Fondazione Eni Enrico Mattei (FEEM) — an international research center based in Milan, Italy.

The increase in activity illustrates the increasing confidence in global markets, the report said. “Though the value of SWF investment in H1 2010 represented less than 40% of the value of investment in H2 2009, there has been a continued uptick in the number of investments made,” said William Miracky, a senior partner at Monitor Group, in the report. “Sovereign wealth funds’ confidence in global markets seems to be on the rise, and the increase in the number of investments in H1 2010 compared to a year earlier is an encouraging sign.”

The study analyzed SWF transactions in the first half of 2010, finding that 16 of the 33 SWFs in the Monitor/FEEM database undertook 92 publicly reported investments totaling $22.2 billion in that time period — double the number and value of the same period in 2009. Another major trend in SWF activity over the past year: attracting private capital. “This has raised the question that if a SWF is financed by something other than sovereign wealth, should we still think of it as a sovereign wealth fund?,” the report questioned, analyzing why money is being raised in this way, how it affects SWFs’ investment strategies, and whether it changes their sovereign nature.

The most popular sectors for attracting SWF activity: financial services with 19 transactions totaling $7.4 billion; natural resources, 16 purchases for $4.3 billion; and utilities, six deals totaling $4.3 billion. In financial services, according to the research, SWFs favored alternative assets over direct equity stakes in banks or recapitalizing their balance sheets. The study also revealed that SWFs have increased allocations to equities, commodities, real estate, and infrastructure during the first half of 2010, with fund officials pursuing private equity and hedge funds.

Furthermore, more than 75% of SWFs’ total deal value, or $16.3 billion, and about 47% of the deals occurred in developed nations. “A growing number of SWF investments occurred in countries such as India, Russia and … sub-Saharan Africa,” the study stated. “While the total value of these investments remains comparatively small — around $1.5 billion — it represents an ongoing trend of the geographic diversification of SWF portfolios.” 

To see a magazine Interrogation with the Monitor Group and FEEM, click here.