In a Down Economy, SWFs Start to Make Friends

(August 27, 2009) – With private equity and corporate raiders quiet, sovereign wealth funds (SWFs) have stepped up as the preeminent mergers and acquisition players of 2009, and the deals they’re executing are increasingly done in tandem.

SWFs have been busy, especially the many funds controlled by the United Arab Emirates (UAE). According to Emirates Business 24/7 (based on data from MergerMarket), SWFs represent up to 50% of M&A deals in 2009. Sovereign wealth funds account for $17.5 billion of deals until August, the data shows, and the UAE, home to large amounts of oil-based capital, makes up $9.3 billion of that total.

Increasingly, SWFs are working in tandem. Often looking for local expertise – home-country knowledge of investments have been proven to provide outsized returns – it has become common for large funds to partner with smaller, domiciled ones before making investments. Examples include Abu Dhabi-based Mubadala’s partnership with Malaysia Development in a Malaysian energy and real estate deal worth upwards of $1 billion; France’s Fonds Strategique d’Investissement possible joint venture with Mubadala in the French biotechnology field; Korea Investment Corporation’s agreement with Malaysia’s Khazanah Nasional and the Australian QIC; and the joint venture backing Blackrock’s purchase of Barclays Global Investors formed by Chinese, Singaporean, and Kuwaiti SWFs. In addition to gaining local financial knowledge, this trend towards joining with home-country partners is likely a result of SWFs looking for political cover following a decade of increased skepticism over investment motives from wary locals.

A survey released in July by Oxford University predicts that this trend will not abate soon. According to Oxford, 60% of asset managers surveyed – all of whom have regular contact with SWF clients – believe that joint ventures will continue between funds from different countries.