Sovereign wealth funds target real estate as global assets hit record USD5.2trn
Sovereign wealth funds (SWFs) around the world are moving to diversify their portfolios, according to TheCityUK’s Sovereign Wealth Funds 2013 report, with deal transaction sizes getting smaller and emerging markets accounting for a growing share of investments.
The trend towards diversification has resulted in a 30 per cent increase in investment to USD10bn into real estate globally by SWFs over the past 12 months, with information technology and consumer goods also seeing rises in allocation.
The UK, and London in particular, has benefited from SWFs’ increased allocation to real estate. Recent transactions include China Investment Corporation’s GBP245m purchase of Winchester House, the London headquarters of Deutsche Bank. Gingko Tree Investment, part of China’s State Administration of Foreign Exchange, has also invested more than USD1.6bn in at least four deals including water utility, student housing, and office buildings in London and Manchester. Other funds which have made real-estate investments in London during 2012 include The Korea Investment Corporation, the State Oil Fund of the Republic of Azerbaijan and Norway’s Government Pension Fund Global.
TheCityUK’s report also found that overall direct investments by SWFs dropped to a six-year low of USD57bn globally in 2012. This was down more than a third on 2011 and 46 per cent below the peak level of activity three years earlier, as SWFs focused more on their domestic markets. However, investments picked up in the fourth quarter of the year.
Chris Cummings (pictured), chief executive of TheCityUK, says: “The increased investment in property by SWFs is a boon for London, which is a prime real estate location and seen as a safe haven market for investors.
“The UK is a leading destination for SWF investments, accounting for one sixth of global investments since 2005, second only to the US, and attracting more capital than France, Germany and Spain combined. These investments bring numerous benefits to the UK economy, including new jobs and capital for vital infrastructure projects.
“But the UK is also an important centre for the SWF industry as a clearing house for transactions and a location from where funds are managed. Our strong position stems from the structural strengths associated with the cluster of financial and related professional services firms, broad skills base, open market and pivotal international position of English law.”
TheCityUK’s report revealed that global SWF assets under management increased for the fourth year running in 2012, hitting a record USD5.2trn, due to growth in existing assets as well as the launch of a number of new funds during the year. TheCityUK’s projections are for total global SWF assets to grow to USD5.6trn by the end of 2013.
There are two types of SWFs: those funded by commodities' exports (primarily oil and gas), totalling USD3.0trn at the end of 2012, or 58 per cent of total assets; and non-commodity SWFs, totalling USD2.2trn. Non-commodity SWFs are projected to increase more quickly than commodity SWFs in the future, as Asian countries, particularly China, continue to build up foreign exchange reserves.
There was an additional USD7.7trn held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations' funds, and USD8.4trrn in other official foreign exchange reserves.
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