Direct investments made by sovereign wealth funds bounced back last year after a sluggish 2017, driven largely by investments in young, disruptive start-ups.
SWFs last year completed 147 direct deals – up from 126 the previous year – according to the 2018 annual review from industry body the International Forum of Sovereign Wealth Funds. These investments were largely in innovative industries – $3.4 billion over 44 tech deals – and often co-investments with both asset owners and asset managers.
The report also found that SWFs, which are traditionally conservative investors, have been keen to finance companies in the early stages of capital raising. In 2018, SWFs doubled their early-stage commitments with 19 deals versus nine the previous year. Growth-stage deals also had an approximately 40 percent increase to 27 transactions.
SWFs also favoured private healthcare companies, completing 40 deals last year against 21 in 2017, the report found.
Investments in later-stage or Series E and F round-companies jumped 14 times compared with only one in 2017. Such deals include agritech company Indigo Agriculture which closed a $250 million Series E funding round backed by Alaska Permanent Fund Corporation and the Investment Corporation of Dubai.
Looking at tech sub-sectors, SWFs favoured investments in internet-based companies. San Francisco-headquartered Doordash, an on-demand food delivery service raised $535 million last year from GIC, SoftBank, Sequoia Capital and the Wellcome Trust. Singapore state-investor Temasek backed teamed up with Swedish investment firm Kinnevik in the $150 million funding round of transport booking start-up GoEuro while Saudi Arabia’s Public Investment Fund invested $400 million to a Series D round for augmented reality company Magic Leap.
Sovereign funds’ interest in internet-based companies has grown because of the sheer number of start-ups creating new software, according to Enrico Soddu, head of data and analytics at IFSWF. Sectors such as mobile and telecom are often overlooked because of the regulatory challenges surrounding the industry.
In healthcare, medical equipment and pharmaceutical sub-sectors also face regulation issues and have high competition, leading SWFs to flock to biotech and healthcare providers, Soddu added.
To gain exposure to disruptive technologies, SWFs are approaching the sector in different ways, the report noted. Australia’s Future Fund, for example, has a $2 billion programme venture capital programme and often teams up with Californian VC firms such as New Enterprise Associates and Lightspeed Venture Partners. Singapore’s Temasek and GIC invest directly, while Malaysia’s Khazanah Nasional, Mubadala Investment Company‘s Mubadala Ventures, and the Qatar Investment Authority have set up offices or subsidiaries in Silicon Valley.
Others have taken a slightly different approach of using dedicated venture capital units such as the Kuwait Investment Authority’s Impulse International, which was established by KIA subsidiary National Technology Enterprises Company to make direct investments in IT, innovation and communications in Kuwait and other MENA countries.