Corporate deals by sovereign wealth funds halve in Jul-Sep; GIC still active

Corporate deals by sovereign wealth funds halve in Jul-Sep; GIC still active

By Reuters

  • 21 Oct 2017
Credit: Reuters

The value of corporate deals with sovereign wealth fund (SWF) participation halved in the third quarter as oil-driven funds continued to take a back seat.

Asian funds GIC of Singapore and CIC of China made all the running.

According to Thomson Reuters data, SWFs participated in deals worth just $14.1 billion, down from a revised $28.3 billion April-June, even though the number of deals rose to 38 from 31 quarter-on-quarter.

The second quarter’s total, however, was swollen by China Investment Corp’s (CIC) whopping $13.7 billion acquisition of warehouse firm Logicor, Europe’s biggest ever private equity real estate deal.

In a continuation of the previous quarter’s trend, CIC and GIC remained the most acquisitive funds, with CIC involved in 14 deals and GIC 10.

“The sovereign funds that are active are those that are generating current account trade surpluses,” said Michael Power, a strategist at Investec Asset Management.

In contrast, the oil-backed funds have been less acquisitive in recent quarters, reflecting the constraints imposed by persistent low oil prices.

Markus Massi, a senior partner at Boston Consulting Group, said another reason for the dominance of the Asian funds was that they had specialist teams looking for deals.

“The Asians are actively going out and scouting. If you’re a private equity company and you want to close a deal, it’s easier to go to someone who already has the knowledge and capability on the other side.”

GIC participated in the top three deals, the largest being a $6.4 billion offer for Danish payments processor Nets by newly-formed company Evergood 5. The deal was backed by a consortium that included GIC, led by private equity firm Hellman & Friedman.

The second largest was the $1.6 billion acquisition of Hong Kong-based insurer MassMutual Asia by another investor group that included GIC.

The rise in the number of consortium deals has gone hand-in-hand with ballooning deal sizes. “There is so much firepower available at the moment, you can go hunting for larger assets,” said Massi.

GIC also led a $220 million funding round for Chinese peer-to-peer lending platform Dianrong.

Power said the barriers to entry for most financial services were falling so sovereign funds needed to protect their portfolios by diversifying into the new players.

“It’s the tech-driven disruptors that are starting to redefine what financial services means,” he said.

Eight of CIC’s investments were in healthcare, a hotly-sought after area, and two in real estate. This followed last quarter’s Logicor buy and CIC’s involvement in the consortium that bought InterPark, the largest owner-operator of parking infrastructure in the United States.

This time GIC clinched the biggest real estate deal, taking a stake in the property rental unit of India’s DLF.