This is a follow up to previous interviews… View them here and here
We have gone from trying to push them away in Q1, to begging for their money in Q2, to them just ignoring the rest of the world on Q3. Funny how events unfold…
Q3 Highlights:
Monitor Group Research Reveals Sovereign Wealth Funds
Alter Investment Strategies during Worsening Global Financial Crisis, Funds Focus on Joint Ventures and Home Market Investments
Cambridge, Mass. – December 17 – In Q3 of 2008, as the global financial crisis continued to worsen, SWFs sought to limit their exposure to the riskiness of OECD markets. At the same time these funds sought to put more capital to work in their domestic economies which were becoming increasingly strained. These developments are highlighted by Monitor Group, one of the world’s leading advisory and consulting firms in its July-September 2008 quarterly analysis of global SWF investments.
The latest Monitor Group analysis is a quarterly update to its June 2008 report: “Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.” Key findings of the latest analysis include:
§ SWF recent behavior shows a marked shift toward domestic and emerging markets deals. 46 percent of reported deals in Q3 were domestic transactions, the highest percentage since 2003. Also, 54 percent of Q2 and Q3 deals by value ($23 billion out of $42 billion) were in emerging markets, the highest share of total deal value since 2005
§ Investment in OECD countries has declined sharply during 2008, from $37 billion in Q1 to $9 billion in Q2 and $8 billion in Q3. In Q3, North American targets were involved in 7 SWF deals totaling $2.4 billion. In contrast, there were 7 North American deals totaling $23 billion during Q1 2008.
§ Investment in financial sector targets has fallen off significantly since Q1; real estate investment, which spiked up in Q2, also dropped sharply in Q3. Financials comprised $43.4 billion of deal value in Q1, compared to $4 billion each in Q2 and Q3. Real Estate deals were $3.2 billion in Q3 (16 percent of the total), compared to $13.7 billion (52 percent) in Q2 2008.
§ SWFs from the MENA region were the most active in Q3, carrying out some 90 percent of the deals by value. Asian SWFs were much less active in Q3 2008 than in previous quarters.
§ In Q3, funds in the Monitor SWF Transaction Database executed 46 deals totaling $15.4 billion. This is a decline from $58.3 billion in Q1, and $26.5 billion in Q2, although the total number of deals per quarter was similar in all three quarters.
I spoke to Drosten Fisher today, a principal with the international strategy consultancy Monitor Group. His focus is serving government and commercial clients in the areas of economic competitiveness, national security and international finance. A Middle East specialist, he speaks Arabic and has lived and worked in the region. He is a co-author of a recent Monitor report into sovereign wealth fund investment and is a regular speaker and commentator on Middle Eastern investment, politics and business. Educated at Oxford, LSE, and Georgetown, Drosten is a member of the Arab Bankers Association of North America.
He feels that SWF’s are going to be very selective going forward, especially in the financial services area when investing. Domestic pressures, both from the fall of oil and the falling trades surpluses are forcing SWF’s to focus internally in their investment choices. This paradigm does not show any reversal until the global economy, especially the US (#1 trade partner) improves. Further, continued weakness in oil prices will depress foreign investment from SWF’s indefinitely.
Here is the Full Report:
Monitor Group SWF Q3 Report