GIC, Temasek emerge as 2022's most active sovereign investors

During a year when investors were hit with a perfect storm of bearish factors on both the economic and political fronts, the Singapore government’s two main investment agencies remained prominent players among their peers.

As volatility continued to dog investment markets, the challenge of 2022 was the major correction in both bonds and equities. Among the main market indices, only the FTSE 100 managed to close the year in the black. Global listed benchmarks for private markets also dropped significantly.

Given that backdrop, 2022 was unusual in that the size of sovereign wealth fund (SWF) industry assets actually shrank, according to the latest annual report on SWF funds by research firm Global SWF, released on New Year's Day.

The scale of the drop in SWF assets is debatable, as most of them report with significant delays, if at all, but Global SWF estimates the negative impact totalled $1 trillion.

CHOOSY INVESTORS

Overall, SWFs were increasingly selective in their allocations in 2022, yet state-owned investors (SOIs) deployed more capital in fewer deals than 2021.

At the top of the investment activity table was Singapore’s GIC, which completed 72 private market deals for $39 billion, 13% more than it did in 2021. More than half of that capital was invested in real estate, with a clear bias towards logistics. This was followed by industrials (11%), infrastructure (10%) and technology (10%). GIC continued to prefer developed markets, with more than 66% of its capital deployed in Europe and North America.

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The major trend of the year was the re-emergence of mega-deals, defined as investments of $1 billion or more. The average ticket size increased to levels not seen since 2014, and there were more than 50 mega-deals during the year, according to the research report.

The two largest tickets were paid by Temasek and GIC. Temasek acquired UK testing company Element for $7 billion in January, and GIC spent roughly the same amount in taking private Arizona-based real estate investment trust Store Capital, alongside private equity firm Oak Street. The transactions were, respectively, the second- and third-largest ever single tickets by SWFs, just behind CIC’s $13.7 billion acquisition of Logicor Europe from Blackstone in June 2017.

Diego López, managing director of Global SWF, observed that GIC was often seen in some of the world’s largest deals, usually in conjunction with other SOIs and private equity firms. “The Singaporean SWF was everywhere,” he told AsianInvestor.

For example, in 2022 GIC co-invested with the Abu Dhabi Investment Authority (ADIA) in several assets including Zendesk (US), Taibang Biologic (China), Triveni Turbines (India) and Climate Technology (US). Other significant club deals included Direct Chassis (GIC with the Kuwait Investment Authority and the Ontario Municipal Employees Retirement System), and Haddington ESP (GIC, Alberta Investment Management Corporation, or AIMCo, and Ontario Teachers’ Pension Plan, or OTPP).

The scale and increase in divestments among SOIs can be seen with Temasek, which since 2008 has sold $219 billion and made $299 billion of investments. The Global SWF report shows that fiscal 2022 saw the largest gap between investments and divestments due to an uptick in capital deployment.

Overall, only 23% of capital went into developing countries. In terms of industries, "the activities of SOIs were a perfect reflection of the economic changes," said López. "Funds lost interest in healthcare, consumer and technology – ie, in venture capital – and grew their appetite for infrastructure – mostly transportation – energy, industrials and financials."

Within the public equities sphere, GIC and Temasek saw their portfolio of Indian equities grow by at least 18%. Activity and value in Chinese A-shares denominated in Rmb and owned by sovereign investors decreased significantly during the year, with both the Hong Kong and Shanghai stock exchanges  down more than 12% by year’s end.

López expects that with valuations well down, “a revival of investments in China would be possible, but will be highly dependent on geopolitical developments.”

PHILIPPINE SWF GETS GREEN LIGHT

In terms of new activity by sovereign investors, López expects this year to be a busy one. In particular, he said there should be significant progress with new SWFs that have been proposed, for example, in Papua New Guinea and the Philippines.

Following a Philippine government proposal in November 2022 to create the Maharlika Wealth Fund, the initial idea was for the SWF to be seeded by the country’s two major public pension funds, the Government Service Insurance System and Social Security System. This has met with some opposition.

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“There is currently a heated debate between the ruling party and the opposition, which highlights the challenges of establishing a SWF in a democratic nation, but the bill was just approved last week,” López told AsianInvestor.

Global SWF expects to see at least four new offices opened by sovereign funds in the next 12 months, including Malaysian SWF Khazanah’s new post in New York, Temasek’s latest office in Paris and AIMCo’s new presence in Singapore.

“It’ll be interesting to keep monitoring the debate between Hong Kong and Singapore, and see whether [Canadian funds] CPP and PSP also decide to join the rest of their peers in the latter,” López said.

Temasek’s high-profile losses sustained in the FTX cryptocurrency exchange debacle and other crypto ventures may have hurt its ability to invest in other venture capital-type assets.

"We would expect SOIs to be extra-cautious with new or riskier strategies in the year ahead,” López said. “This includes venture capital, which could stay low-key for another year."

Aggressive products such as volatility trading (AIMCo) and crypto (Temasek, OTPP and CDPQ) have created reputational damage for those funds recently.

“In general, investors may stay low in venture capital and risky investments. Temasek, in particular, will apply much more attention to due diligence processes,” he said.