In a short time, sovereign wealth funds have gone from being rainy-day funds to tools of radical economic transformation.
Whether it’s the Public Investment Fund’s $45 billion investment in the Vision Fund, an accelerator for the country’s diversification away from oil, or the participation of funds such as Mubadala in Series A venture capital funding rounds, SWFs are becoming “global thought partners for the most complex, important and pressing domestic issues”, in the words of the International Forum for Sovereign Wealth Funds in its 2018 review.
In lockstep, the region’s SWFs have gone from being primarily fund investors to sophisticated originators and executors of deals. In a lesson learned from PE and VC firms, they are revamping their policies and structures to be able to respond more quickly to opportunities. Their long-term approach to investing has boosted their attractiveness to companies seeking a strategic investor, which growing numbers of PE firms are trying to replicate with ‘patient capital’ strategies.
These are the major private equity investors in the region and what they have been up to since our last MENA special in 2017.
Abu Dhabi Investment Authority
ADIA has slipped a spot in the world SWF rankings to third since 2017, overtaken by China Investment Corporation. It still has a decent war chest, though, $66 billion of which is invested in private equity.
In 2016, ADIA announced it would restructure itself into teams based on region and sector, rather than strategy and asset class. Another important piece in the jigsaw was added in October 2018, when Kabir Mathur was hired from KKR to run the fund’s private equity operations in India and South-East Asia.
ADIA has continued to reduce its reliance on external fund managers. According to its 2017 annual report (the latest available), 55 percent of assets under management were overseen by external fund managers, down from 60 percent in 2016.
Kuwait Investment Authority
The world’s oldest sovereign wealth fund, formed in 1953, and probably the most secretive, KIA allocates around 10 percent of its assets to private equity, generally through fund investments. Considered conservative, it only invests in funds above $1 billion in size, such as BC European Capital X and FSI Mid-Market Growth Equity Fund, the debut fund from Italian Fondo FSI, according to PEI data.
The fund has been on a mission since 2017 to increase the proportion of its assets managed in-house to as much as 8 percent, from around 1-2 percent. Speaking on a panel at the World Economic Forum in Davos that year, then-managing director Bader Al-Saad added the fund would have to take more risks in order to maintain its returns.
The KIA has pivoted towards Asia – in 2018 it opened an office in Shanghai to go with the one it opened in Beijing in 2004.
Qatar Investment Authority
It’s hard to know how much private equity investing Qatar Investment Authority does, but what it has done has been chiefly through fund investments.
Recent years have seen QIA push to diversify away from listed equities through upping its investment in private equity and infrastructure and adding credit to its portfolio. Like its Saudi neighbour, the Public Investment Fund, QIA has doubled down on the technology sector. In December 2017 it teamed up with hedge fund Elliott Management Corporation to take networking software company Gigamon private in a $1.6 billion deal.
It has also, according to press reports, turned towards Asia and the US in the last couple of years, after having built a strong European portfolio. In 2016, for example, it invested €600 million in first-time manager Peninsula Capital Advisors to take minority and majority positions in southern European companies.
Public Investment Fund
The Public Investment Fund has a clear, over-riding goal: to become the world’s largest sovereign wealth fund. It expects to grow its assets under management from $250 billion to more than $400 billion by 2020 and an eye-watering $2 trillion by 2030. It is also aiming to increase its returns to around 5 percent on average by 2020, up from around 3 percent in 2018.
Alternatives will play a central role in this. PIF’s first big move was picking up a $3.5 billion stake in ride-hailing giant Uber in 2016. It was the lead investor in SoftBank’s Vision Fund, committing $45 billion of the $98.6 billion raised as of 31 March, and also pledged to invest up to $20 billion in Blackstone’s debut infrastructure fund, which is seeking $40 billion. It even invested $1 billion in spaceflight company Virgin Galactic.
Mubadala Investment Company
From a PE standpoint, Mubadala is one of the world’s most advanced sovereign wealth funds. In June 2017, the Abu Dhabi-based fund got into third-party money management by way of the largest-ever stapled deal. Ardian invested $1.75 billion in the portfolio and committed $750 million to a new blind-pool fund that the SWF would manage, with an array of US public pension funds, sovereign wealth funds, insurance companies and others providing an additional $750 million.
In May the same year it committed $15 billion to the Vision Fund, the brainchild of SoftBank founder Masayoshi Son currently weighing in at $98.6 billion, and later announced a $400 million venture capital partnership with SoftBank to invest in European tech companies and VC funds. It is a matter of time before Mubadala attempts to raise a private equity fund unaided.