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LONDON - Sovereign investor deal-making fell 24 percent in 2017 to $72.5 billion as megadeals such as China Investment Corp's (CIC) bumper $13.8 billion buy of warehouse firm Logicor, which led the pack, were thin on the ground.
In previous years, multi-decade port infrastructure leases and pipeline purchases have swollen the pot. In 2017, it was consortium deals and venture capital funding rounds that boosted values, with tech start-ups and energy the popular plays.
For example, the second largest deal in the fourth quarter was a mega-funding round for on-demand services provider China Internet Plus. This raised $4 billion, with GIC among the participants.
But the number of deals by sovereign investors, which include sovereign wealth funds (SWFs) and state pension funds, fell to 183 in 2017 from 198 in 2016, according to Thomson Reuters data.
"Increasingly (SWFs) are having difficulties finding the right deals and some of the private equity transactions are quite expensive, so late stage venture capital and pre-IPO engagements are a way to do quasi-direct investment deals," said Markus Massi, a senior partner at Boston Consulting Group.
"It allows them to deploy a couple of billion compared to doing 10 smaller deals ... that keeps the dealflow manageable."
Javier Capape, a director at the Sovereign Wealth Lab research centre in Madrid, added that massive start-ups were delaying listing to avoid valuation erosion, sucking in more private capital: "We don't know if they will survive the scrutiny of public markets. So they are doing bigger and bigger rounds."
GREEN ENERGY
After CIC's Logicor acquisition, 2017's next biggest deal was a $6.4 billion offer for Danish payments processor Nets by a consortium that included Singapore's GIC.
In third place was another consortium deal - the $5.6 billion purchase of Australian power grid Endeavour Energy.
The fourth quarter continued these trends with CIC once again participating in the biggest deal.
It partnered with U.S. fund Global Infrastructure Partners and others on a $5 billion consortium acquisition of Equis Energy, Asia's largest independent renewable energy firm. This was said to be the largest renewables generation deal ever.
Capape noted the Chinese government's support of renewables, saying this deal could help them import expertise to build green energy capacity at home.
In total, fourth quarter deals with SWF participation were worth $16.2 billion, up 2.6 percent from the previous quarter, although the number of deals fell to 48 from 54.
Other notable final quarter deals included Norway's first Asian real estate investment, the purchase of a 70 percent stake in five properties in Tokyo.Property remains popular with SWFs for its steady income stream.
Funding database PitchBook valued full-year SWF direct investment activity at $135.2 billion, including SWF participation in IPOs. SWF dealflow values can vary depending on how the investor is categorised and when the deal is booked.
Activity was particularly strong in Asian IPOs, where SWFs were keen to tap the long-term growth opportunities offered by the burgeoning middle classes.
Notably, insurer SBI Life attracted ADIA, GIC, CPPIB and Kuwait Investment Authority (KIA) as anchor investors in India's first billion dollar IPO in seven years. It was swiftly followed by HDFC Life, which pulled in ADIA, Temasek and KIA, among others.
"It's an alternative way to deploy money in a chunky way, and they are often offered preferred conditions because the company wants a stable investor," said Massi, adding that the interest in India had really woken up.
(Reporting by Claire Milhench; Editing by Alison Williams) ((claire.milhench@thomsonreuters.com; +44)(0)(207 542 3571; Reuters Messaging: claire.milhench.thomsonreuters.com@reuters.net))
In previous years, multi-decade port infrastructure leases and pipeline purchases have swollen the pot. In 2017, it was consortium deals and venture capital funding rounds that boosted values, with tech start-ups and energy the popular plays.
For example, the second largest deal in the fourth quarter was a mega-funding round for on-demand services provider China Internet Plus. This raised $4 billion, with GIC among the participants.
But the number of deals by sovereign investors, which include sovereign wealth funds (SWFs) and state pension funds, fell to 183 in 2017 from 198 in 2016, according to Thomson Reuters data.
"Increasingly (SWFs) are having difficulties finding the right deals and some of the private equity transactions are quite expensive, so late stage venture capital and pre-IPO engagements are a way to do quasi-direct investment deals," said Markus Massi, a senior partner at Boston Consulting Group.
"It allows them to deploy a couple of billion compared to doing 10 smaller deals ... that keeps the dealflow manageable."
Javier Capape, a director at the Sovereign Wealth Lab research centre in Madrid, added that massive start-ups were delaying listing to avoid valuation erosion, sucking in more private capital: "We don't know if they will survive the scrutiny of public markets. So they are doing bigger and bigger rounds."
GREEN ENERGY
After CIC's Logicor acquisition, 2017's next biggest deal was a $6.4 billion offer for Danish payments processor Nets by a consortium that included Singapore's GIC.
In third place was another consortium deal - the $5.6 billion purchase of Australian power grid Endeavour Energy.
The fourth quarter continued these trends with CIC once again participating in the biggest deal.
It partnered with U.S. fund Global Infrastructure Partners and others on a $5 billion consortium acquisition of Equis Energy, Asia's largest independent renewable energy firm. This was said to be the largest renewables generation deal ever.
Capape noted the Chinese government's support of renewables, saying this deal could help them import expertise to build green energy capacity at home.
In total, fourth quarter deals with SWF participation were worth $16.2 billion, up 2.6 percent from the previous quarter, although the number of deals fell to 48 from 54.
Other notable final quarter deals included Norway's first Asian real estate investment, the purchase of a 70 percent stake in five properties in Tokyo.
Funding database PitchBook valued full-year SWF direct investment activity at $135.2 billion, including SWF participation in IPOs. SWF dealflow values can vary depending on how the investor is categorised and when the deal is booked.
Activity was particularly strong in Asian IPOs, where SWFs were keen to tap the long-term growth opportunities offered by the burgeoning middle classes.
Notably, insurer SBI Life attracted ADIA, GIC, CPPIB and Kuwait Investment Authority (KIA) as anchor investors in India's first billion dollar IPO in seven years. It was swiftly followed by HDFC Life, which pulled in ADIA, Temasek and KIA, among others.
"It's an alternative way to deploy money in a chunky way, and they are often offered preferred conditions because the company wants a stable investor," said Massi, adding that the interest in India had really woken up.
(Reporting by Claire Milhench; Editing by Alison Williams) ((claire.milhench@thomsonreuters.com; +44)(0)(207 542 3571; Reuters Messaging: claire.milhench.thomsonreuters.com@reuters.net))
