SWFs return home after run of cross-border deals

Sovereign wealth funds (SWFs) piled a record $20 billion into foreign direct investment (FDI) transactions last year, continuing the big cross-border forays they began in 2005.

But FDI and cross-border M&A activity from SWFs collapsed at the beginning of 2009 as portfolios were hit by the market downturn, and funds received less revenue from home governments as global trade slowed and commodity prices declined.

The findings were published in the World Investment Report 2009 by the United Nations Conference on Trade and Development (UNCAD).

The surge of FDI by SWFs “bucked the downward trend in global FDI as a whole” during 2008, the report states.

In the past two decades, cross-border M&A activity from SWFs totalled $65 billion, of which $57 billion was invested in the past four years.

Nearly three quarters of this FDI was directed to developed countries, particularly the UK, US and Canada.

The investments were highly concentrated in the financial and business services industries, respectively accounting for 26 per cent and 15 per cent of cross-border M&A between during 1987 to 2008.

The biggest investments were made by the SWFs of the United Arab Emirates and Singapore’s Temasek.

But in 2008, SWFs favoured mining, quarrying and petroleum industries, paring back their allocations to financial services, which nevertheless remains the most heavily invested sector.

But the stockmarket meltdowns of 2008 caused big investment losses and depressed the pace of growth of FDI and cross-border M&A activities. With economies looking at recovery but still hurting from the financial crisis, SWFs are putting more money in their home markets “to support their banking industries, to boost expenditures by their firms and, in some cases, to avoid foreign takeovers of some domestic firms,” the UNCAD report states.

“A number of them are withdrawing their investments in anticipation of further reductions in the value of their investments, and some of them are re-routing their funds for use in their domestic economies to restore investor confidence,” it says.

Meanwhile, the report calculated that four major SWFs form the Gulf together lost about $350 billion in 2008, falling from $1.165 trillion to $1.115 trillion.

The Abu Dhabi Investment Authority shed $183 billion from the $453 billion it held in 2007. But the emirate pumped $57 billion into the fund, pushing its value to $329 billion.

The Kuwait Investment Authority lost $94 billion from its $262 billion, but the government primed it with $59 billion, lifting its funds under management to $228 billion.

The Qatar Investment Authority recorded a loss of $27 billion to land at $66 billion, while the Saudi Arabia Monetary Agency saw $46 billion vanish from its $501 billion.