With an estimated US$8 trillion assets under management, sovereign wealth funds (SWFs) control more capital than the global private equity market.
The COVID-19 crisis caused an immediate shock to SWF’s portfolios. The Norwegian Government Pension Plan, for example, lost an estimated US$21.3 billion in the first six months of the year due to market volatility caused by the COVID-19 pandemic.
Amidst a volatile backdrop, SWFs made 148 acquisitions in 2020, up 19% in volume compared to 2019, according to Dealogic data. The total value of these acquisitions, on the other hand, decreased 13% to US$70.8 billion.
Middle Eastern SWFs hunt for deals
The UAE and Saudi Arabia have been most active within the top-end of the market. Of the 13 acquisitions valued over US$1 billion conducted by SWFs in 2020, seven were conducted by these two countries.
A major focus was India’s growing digital economy, with Saudi Arabia’s Public Investment Fund (PIF) taking part in three deals over US$1 billion targeting this industry in 2020. In the largest of the deals, PIF acquired a 2% stake in Jio platforms—the digital unit of conglomerate giant Reliance Industries—for US$1.5 billion in June. India’s fast-growing digital services business has seen a flurry of investor interest amidst the COVID-19 pandemic, with Facebook acquiring a 10% stake in the company for US$5.7 billion in April.
PIF’s acquisition was reportedly the tenth investment in Jio platforms during the COVID-19 pandemic. The deal followed investments from two other Middle Eastern SWFs earlier in the month: UAE SWF Mubadala Investment Co. acquired a 1.85% stake in the company for US$1.2 billion, while the Abu Dhabi Investment Authority (ADIA) snapped up a 1.16% stake for US$750 million.
PIF’s acquisition spree continued throughout the year. In October, PIF teamed up with ADIA to jointly invest US$1.1 billion in Digital Fibre Infrastructure Trust—Reliance’s fiberoptics business—for an undisclosed stake. PIF went on to buy a 2% stake in Reliance Retail Ventures, the retail arm of Reliance Industries, for US$1.3 billion in a deal announced in November.
SWFs ramp up VC fundraising
Sovereign wealth funds have stepped up their activity in venture capital (VC) investment in recent years—attracted to the long-term investment horizons and high returns on offer.
Singapore’s SWFs have been particularly active in the VC space, with a particular focus on China’s booming ecommerce industry. In February this year, Temasek was part of the consortium, led by Sequoia Capital China, investing US$3 billion in Chinese community grocery shopping app Xingsheng Youxuan. The investment was the largest VC round since 2017, according to Dealogic data, and reflects the boom in online grocery shopping amid the COVID-19 pandemic.
Previously in October, GIC and Temasek were part of the consortium, led by Tencent and DST Global, that invested a combined US$2.2 billion in Chinese online education platform Yuanfudao. Temasek has had an active start to 2021, leading the US$1.5 billion investment in Chinese parcel delivery provider Tianjin Kuaiji Anyun Delivery Co Ltd. in January.
In the largest funding round with SWF involvement in 2020, UAE’s Mubadala Investment Company joined a consortium led by Silver Lake, investing US$2.25 billion in Waymo—the self-driving technology firm owned by Google’s parent company Alphabet.
Later in the year, Mubadala and Silver Lake announced they had partnered to create a new fund with a 25-year deployment lifecycle. The investment strategy would be managed by Silver Lake, and Mubadala would provide a US$2 billion investment.
Qatar Investment Authority (QIA), the SWF of Qatar, has also been active in the VC space. In the past few years, QIA participated in a US$160 million Series C financing of US-based cell therapy company Century Therapeutics, joined in a US$230 million in Series B financing for new life sciences company Tessera Therapeutics, and helped student debt refinancing company SoFi raise more than US$500 million.
Joining the SPAC boom
Special purpose acquisition companies, or SPACs, emerged as a leading M&A trend in 2020. SPACs are shell companies that list on stock markets and proceed to acquire M&A targets. Following the merger, the target becomes public. SWFs are beginning to take an interest in this growing investment trend.
In February this year, PIF led a consortium acquiring a 10.42% stake in Churchill Capital Corp. IV, the listed US-based SPAC, in a deal valued at US$2.5 billion. In the same month, Churchill announced its merger with US EV manufacturer Lucid Motors, valuing the company at US$24 billion. PIF had previously invested US$1 billion in Lucid Motors in 2018, and remains the majority investor in Lucid following the merger.
While their investments were initially hit hard by COVID-19 volatility, SWFs wasted no time in 2020—using a variety of dealmaking methods to ensure long-term growth and stable returns for future generations. As a result, SWFs have become an increasingly influential player in the global M&A market, and will continue to seek out deals in high-growth sectors over the coming year.
The pandemic could prove to be a good opportunity to accelerate sustainable investments and the decarbonization trend, and SWFs have a strong role to play in this transition.
For example, the One Planet Sovereign Wealth Funds (OPSWF) initiative aims to tap into the opportunities in the transition to a low emissions economy, and address risks related to climate change in the management of large, long-term and diversified-asset pools. OPSWF comprises 33 of the world’s largest institutional investors, with over US$30 trillion in assets under management and ownership, including 14 sovereign wealth funds, 14 global asset managers and 5 private investment firms.