Sovereign Wealth Funds In Partnership On Strategic Investments

Due to the credit crunch,many companies find it difficult to get the financing. Private equity funds in this period of time are gaining much prominence. One such powerful “private” equity group is the sovereign wealth funds which are often run state-owned. Do not underestimate such Sovereign wealth funds as it comprise a US$3 trillion (US$1 = RM3.54) industry which invests windfall revenues from oil or other exports for future generations.

In the past and even present,we have often eyed Sovereign wealth funds as a secretive style of investments shrouded with so much secrecy as though any such investment/acquisition is perceived as though a certain country sovereign wealth fund is buying up assets to achieve political,rather than commercial objectives. Typical examples are the GIC and Temasek of Singapore.

Interestingly,this sort of secrecy investments has now slowly moved to more cooperation and even partnerships amongst several sovereign wealth groups on strategic investments.

There are many reasons to justify such actions like for example:

• To basically reduce risks and maximize returns

• With such partnerships,the move will enable state-owned funds to optimise local knowledge,leverage capital,spread investment risks and maximise returns. They could also create a bigger,more diverse and transparent entity,whose long-term investments — often holding assets for years which might help stablize global markets.

• Also,by highlighting their commercial motives,these partnerships might help quell concerns among regulators and politicians who suspect Sovereign Wealth Funds investments as politically driven and

• Psychological comfort that when another sovereign wealth fund join in the foray

Incidentally,many state-owned funds from China,Singapore,Malaysia,Korea,Abu Dhabi and Kuwait are among those which have recently signed agreements to form investment partnerships with each other.

Some examples are:

1. Abu Dhabi’s Mubadala signed a partnership deal with 1Malaysia Development Bhd (1MDB),the country’s new wealth fund,to make a US$1 billion investment in Malaysia in the energy,real estate and hospitality sectors.
2. France’s FSI (Fonds Strategique d’Investissement) is looking at investing jointly with Mubadala in the French biotechnology sector,spending just over e10 million (RM50 million) per company.
3. SWFs from China,Singapore and Kuwait joined forces to support Blackrock’s acquisition of Barclays Global Investors in June.
4. Samruk-Kazyna’s investment arm Kazyna Capital Management is also planning to set up a fund with Tajikistan and Kyrgyzstan to co-invest in the region
5. India and Oman hves a joint investment fund with an initial investment of US$100 million over the next few years and the amount could reach US$1.5 billion.
6. Korea Investment Corp signed cooperation agreements in June with Malaysia’s Khazanah Nasional Bhd and Australia’s institutional investor QIC.

It looks good to know that with partnerships,such sovereign wealth funds can “stabilize”the potential investee- companies instead of purely relying on the quarterly returns.

However like any usual partnerships which have challenges,we might initially deduce that they could be hugh challenge pertaining to the partners to open their books to increase transparency in these already secretive investment industry.

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