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The handful of funds driving global dealmaking show a greater interest in emerging markets
In the ascendant: Saudi Arabia’s Public Investment Authority has played a role in the country’s Vision 2030 plan. Image via Bloomberg
Danielle Myles November 28, 2024
Six sovereign wealth funds (SWF) from the Middle East and Singapore have cemented their dominance over the industry’s direct investments in projects and companies, but their pace of dealmaking has dropped from the highs of 2022.
These are the key takeaways from the 2024 edition of Madrid-based IE University’s Sovereign Wealth Funds Report, released on November 26. It shows that 81% of direct investments by SWFs between January 2023 and June 2024 were made by Singapore’s Temasek and GIC, Abu Dhabi’s Mubadala, the Abu Dhabi Investment Authority (ADIA), Qatar Investment Authority and Saudi Arabia’s Public Investment Authority (PIF).
“These are the ‘big six’ of SWF activity,” says Javier Capapé Aguilar, a director at IE University’s Center for the Governance of Change and co-editor of the report. These funds were also collectively responsible for 92% of SWF dealmaking by value over the report period.
SWFs’ engagement in direct investing — by taking equity investments in private companies, infrastructure and real-estate assets without using a traditional intermediary such as a private equity firm — marks a shift away from the industry’s traditional focus of investing in public securities.
Since IE University started reporting annually on this activity in 2016, Singapore’s Temasek and GIC have consistently topped the table of most active direct investors by deal count. Mubadala has sat in third spot since 2017, while PIF has steadily climbed the table to join the leading pack in 2022, following its overhaul to support the modernisation of Saudi Arabia’s economy under its Vision 2030 plan.
Over the past eight years, the number of SWF direct investments has followed a bumpy upward trajectory. In 2023 alone, IE University tracked 326 direct investments in 2023. Although it marks a slowdown from the previous year, Mr Capapé doesn’t see this as a threat to SWFs’ growing role as a conduit for foreign direct investment (FDI), which is spurred by their direct investing strategy. “The top SWFs … play a permanent role in FDI,” he says, reflecting on his 12 years of studying the industry’s investment habits.
Globally, SWFs’ firepower is growing. Their total assets under management have reached a record high $13.2tn according to IE University, up from $11.6tn a year ago.
Further reading on sovereign wealth funds:
- Sovereign investors are the new conduits of FDI
- The SWFs derisking inbound FDI
- UK strategy could unlock £7.7bn in foreign SWF investment
Rebalancing north to south
The US continues to be the top destination for SWFs’ direct investments, by both value and volume. This is in line with the industry’s history of acquiring real-estate — one of its original forms of direct investing — in major western cities such as London, New York and Paris.
However this year’s report shows that emerging markets have cemented themselves as some of the most favoured destinations for SWF capital. India is the prime example, holding onto second place in the table of most common destinations by deal count for three years running. “Emerging markets will play a growing role. We see it with India already … consolidating its position,” Mr Capapé says.
In October, ADIA opened a subsidiary in India, a move that “underlines our belief in the opportunities presented by India’s continued growth”, ADIA managing director Hamed bin Zayed Al Nahyan said in a statement at the time.
The other emerging market hotspots for SWF direct investing are Saudi Arabia (ranked fourth) and China (fifth), UAE (seventh) and Brazil (ninth).
In the case of Saudi Arabia and the UAE, their inbound dealflow is fuelled in part by their SWFs investing not only abroad, but also in projects at home as part of their local development mandates. Meanwhile India’s rise is aided by its SWF, the National Investment and Infrastructure Fund, which is part of the new breed of catalyser funds focused on derisking inbound investment by foreign SWFs and other long-term investors.
