SWFs curb cross-border investments

Direct investments from sovereign wealth funds saw a 42 percent drop in the first half of the year compared with the same period in 2015, according to research from the Sovereign Wealth Fund Institute (SWFI).

‘For the first half of 2016, wealth funds and other public pension investors invested $73.2 bn directly,’ write the researchers. ‘This is a sharp decline from the $126.7 bn directly invested in the first half of 2015.’

That doesn’t mean there aren’t still significant sums being invested however, with the SWFI noting an interest in disruptive technology. Saudi Arabia’s Public Investment Fund (PIF), for example, invested $3.5 bn in Uber – the largest single investment ever made in a private company.

But, ‘besides the massive Uber-PIF deal, wealth funds overwhelmingly pursued smaller average deal sizes,’ write the researchers, highlighting Temasek Holdings’ participation in a series B round in Brooklyn-based Modern Meadow – a company that ‘biofabricates’ leather in laboratories – as an example.

The UK saw direct investment by public investors drop in the run up to the June referendum that resulted in a vote to leave the EU, while wealth fund investments in the US also nearly halved – from $67 bn in the first half of 2015 to $37.1 bn in the first six months of this year.

In an environment where SWFs and public pension funds have reigned in their foreign investments, Michael Maduell, president of the Las Vegas-headquartered SWFI, says it’s more important than ever for IROs to know their investor base.

‘In general, SWFs have become more selective and nimble when it relates to direct investing as higher equity volatility persists,’ he says.

‘Successful investor relations officers must fully-understand their shareholder base, though unfortunately, many do not. Worse still, some companies largely neglect the IR function.’

The investor segment covered by the SWFI, which includes SWFs, pensions, superannuation funds, central bank reserves, endowments and more, boasts aggregate assets under management of more than $30 tn, says the organization.

‘IROs that can identify current and potential SWFs and other long-term institutional investors could see a notable potential capital advantage,’ says Maduell.