The trend towards diversification has resulted in a 30% increase in investment into real estate globally by SWFs over the past twelve months, with information technology and consumer goods also seeing rises in allocation. The allocation increase is largely down to low bond yields in some developed countries and the volatility in equity markets.
The UK, particularly London, has benefited from SWFs’ increased allocation to real estate. Recent transactions include China Investment Corporation’s £245m purchase of Winchester House, the London headquarters of Deutsche Bank. Gingko Tree Investment, part of China’s State Administration of Foreign Exchange, has also invested more than $1.6bn in at least four deals including water utility, student housing, and office buildings in London and Manchester.
Other funds which have made real-estate investments in London during 2012 include The Korea Investment Corporation, the State Oil Fund of the Republic of Azerbaijan and Norway’s Government Pension Fund Global.
TheCityUK’s report also found that overall direct investments by SWFs dropped to a six-year low of $57bn globally in 2012. This was down more than a third on 2011 and 46% below the peak level of activity three years earlier, as SWFs focused more on their domestic markets. However, investments picked up in the fourth quarter of the year.
Chris Cummings, chief executive of TheCityUK, says the increased investment in property by SWFs is a blessing for London, which is a prime real estate location and seen as a safe haven market for investors.
“The UK is a leading destination for SWF investments, accounting for one sixth of global investments since 2005, second only to the US, and attracting more capital than France, Germany and Spain combined,” explains Cummings. “These investments bring numerous benefits to the UK economy, including new jobs and capital for vital infrastructure projects.
“But the UK is also an important centre for the SWF industry as a clearing house for transactions and a location from where funds are managed. Our strong position stems from the structural strengths associated with the cluster of financial and related professional services firms, broad skills base, open market and pivotal international position of English law.”
TheCityUK’s report revealed that global SWF assets under management increased for the fourth year running in 2012, hitting a record $5.2tn, due to growth in existing assets as well as the launch of a number of new funds during the year. TheCityUK’s projections are for total global SWF assets to grow to $5.6tn by the end of 2013.
There was an additional $7.7tn held in other sovereign investment vehicles, such as pension reserve funds, development funds and state-owned corporations' funds, and $8.4tn in other official foreign exchange reserves.