Published on January 6, 2014
Sovereign Wealth Funds & Alternative Investment Strategies Fifth Meeting of the Working Group on Investment Zones in Iraq Cairo, Egypt April 29, 2013 © Dunia Frontier Consultants 2013
Looking at SWFs in the Region § According to the Sovereign Wealth Fund Institute, the total assets under management (AUM) of the 14 Sovereign Wealth Funds (SWFs) based in the GCC amount to US$1.783 trillion—or roughly 34% of the global total. The four largest GCC SWFs—Abu Dhabi Investment Authority, SAMA Foreign Holdings, Kuwait Investment Authority and Qatar Investment Authority—represented the lion’s share at US$1.57 trillion. § Although teams of varying, but generally quite high, sophistication manage much of the SWFs internally, it is estimated that approximately one-third (or US$600 billion) has been allocated to the world’s leading asset management companies of which three handle around US$70 billion each. A larger handful of international money managers specializing in particular areas such as emerging-markets debt or funds of hedge funds handle US$10 – US$20 billion. However, only a small fraction of these billions of dollars works its way back into the GCC. Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 2
Regional SWF Rankings Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 3
Framework for Classifying SWFs § SWFs are severely constrained by the size of their portfolios, and the lack of assets at home, which means they will remain in “business of exporting capital.” The bulk of SWF capital is directed at portfolio diversification, away from the region and particularly away from hydrocarbons. § SWFs are increasing asset allocations to Asia and Africa, with Latin America slowing and Europe and North America still on hold. However, the Arab Spring is moving government revenues from diversification-focused SWFs to local-development projects. Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 4
Survey Responses on SWFs “Now what’s happening is Sanabil or Mubadala has mandate to say, let’s invest domestically, let’s create opportunities domestically, let’s be the incubator where there’s technology, joint venture, capital requirement to put things together and then take it public—and they invest now with that perspective.“ “Most SWFs, however, can’t help but stray oﬀ scope. Aabar [owned by Abu Dhabi’s IPIC] went oﬀ and did a lot of crazy things that didn’t make a lot of sense, merely because that’s what the chairman wanted them to do, really as a sort of financial investment type operation. Whereas Mubadala have been sensible and stuck to their premise that they will invest if there’s a return to be had, and if you can bring some intellectual capital back to the UAE. Can we set up a manufacturing facility in Al Ain, can we build gun turrets, can we train fighter pilots? The Masdar green energy initiative was the poster child for all that, and it didn’t work out in the end, so I believe now Mubadala are consequently more disciplined. Companies like Tabreed [a utility in UAE] were government-incubated entities. You do have those, but that’s not the bulk of where the money is going.” “There’s been a push to change how SWFs invest, creating long-term investment goals and doing things more in house. The sense at the sovereign level is that they want to move to more operational management of their portfolios (Masdar, Mubadala).” Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 5
Framework for Alternative Investment § What opportunities are there for exits? § How do legal frameworks shape ownership and taxes? § What does the investor base look like? § What is the nature of deal sourcing? Exit Opportunities Investors | Financing Entrepreneurs | Business Creation § What does the enabling environment look like? § What are the key diﬀerentiators? Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 6
Recent Examples of SWF Alternatives § China’s State Administration of Foreign Exchange (SAFE) has created a new body called SAFE Co-Financing. This extension of SAFE will assist Chinese companies invest overseas by providing credit loans backed by foreign exchange reserves. Instead of allocating capital to a sovereign fund and then to a fund manager, SAFE Co-Financing will allocate capital through Chinese financial institutions. § Heliconia Capital Management, a sovereign wealth enterprise (SWE) of Singapore’s Temasek Holdings, is backing investment in a fund managed by Dymon Asia Capital by allocating S$100 million to it. The firm plans to raise S$300 million in its Dymon Asia Private Equity fund which will target public and private SMEs. The government of Singapore are targeting S$ 1.5 billion public-private co-investment fund for Singapore SMEs, and Heliconia was created to manage the vehicle. Working Group on Investment Zones in Iraq | © 2013 Dunia Frontier Consultants || 7
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