Wave of young state funds seeks investment partners
A growing wave of early-stage sovereign wealth funds—including those from Kazakhstan, Morocco and Turkey—are looking overseas for more investment partners. These SWFs want to attract capital from Asia, among other places, to put into domestic development projects.
This trend has come amid a growing proliferation of state institutions set up for to make strategic investments in their local markets. Nigeria and Senegal established funds in 2011 and 2013, respectively, while in Asia the Philippines and Thailand are working on similar initiatives.
Samruk-Kazyna, one of Kazakhstan's two SWFs, presented privatisation plans for state-owned enterprises (SOEs) to investors in Hong Kong on Monday (October 16). The fund, with some $70 billion in assets, was set up in 2008 and is nearly three years into a process of market and SOE reform. This is part of government efforts to diversify the Kazakh economy away from natural resources.
Meanwhile, Turkey’s new state fund—established just last year to increase the competitiveness of state companies—is prioritising investment in petrochemicals, said Kerem Alkin, a board member of the fund, at a conference last month.
"Our prime minister and some of our businessmen were in Singapore [in August], looking into what we could do about petrochemical investment with Singapore in Turkey,” he noted. “[Our plan is] to create five new, very specialised industrial areas for petrochemicals in Turkey.”
Speaking at the the annual meeting of the International Forum of Sovereign Wealth Funds (IFSWF), this year held in Kazakhstan, Alkin said another big focus was information technology, notably cyber security.
Meanwhile, Ithmar Capital, rebranded last year from the Moroccan Fund for Tourism Development, is seeking foreign capital to invest in a wider scope of sectors in Morocco.
The fund, with committed capital of $1.8 billion, already partners Middle Eastern SWFs—such as Abu Dhabi’s International Petroleum Investment Company, Kuwait Investment Authority, Qatar Investment Authority, Saudi Arabia’s Public Investment Fund—and African funds.
Seeking to boost Africa’s attraction
Ithmar is now looking to initiate discussions with more SWFs, institutions and corporates, in Africa and beyond, chief executive Tarik Senhaji told AsianInvestor on the sidelines of the IFSWF event.
“We are positioning ourselves as an investment gateway to the African continent,” he noted. “We know that Africa has a very low asset allocation and weighting in institutional investors’ portfolios [globally]. That’s because there are simply not enough bankable projects coming out of the continent.
“That will be one of the main themes of the IFSWF meeting next year [which will be hosted by Ithmar in Morocco]: how to attract more global capital to Africa,” added Senhaji. “That’s what we are trying to address.”
2018 will be the first time the IFSWF gathering—the 10th such meeting—will be held in Africa.
“It’s very important to get it right,” he noted, “because institutional money is not coming into Africa, and we have to find solutions.”
One of the key obstacles is the fact that many projects in Africa are greenfield infrastructure projects. That is, they need building from scratch and therefore entail substantial construction risk, which most investors are not willing to take on in emerging markets.
Still, there are Asian links with Morocco, in the form of companies with operations there: the largest employer in the country is Sumitomo Cable, a Japanese cable maker, noted Senhaji.
And he expects to see more of such investment, noting that Korean, Chinese and other Japanese firms are also talking about putting bases for manufacturing there.
Networking with peers
When it comes to partnering with others and building their network, both Alkin and Senhaji see benefits of being signatories of IFSWF, which seeks to promote dialogue and partnership between its funds.
Members include institutions ranging from huge, well established funds such as Adia and China Investment Corporation (the latter with $814 billion in AUM) to those such as its newest member. The Intergenerational Trust Fund of Nauru, a tiny country in Micronesia, joined IFSWF last month, while Turkiye Wealth Fund joined IFSWF earlier this year.
Senhaji said it helped to discuss questions with other SWFs that have gone through similar issues, such as working out how to assess the developmental impact of each investment.
Alkin made a similar point, noting that “this kind of meeting gives an opportunity to see what are the steps for success and what we can do together with other sovereign wealth funds”.
For instance, he added, new funds can seek advice from their more advanced peers on making investments in technology.