STOCK ADIA Abu Dhabi Investment Authority
Abu Dhabi Investment Authority building. In December 2021, Sempra inked a deal to sell a non-controlling 10 per cent interest in Sempra Infrastructure Partners (Sempra Infrastructure) to a subsidiary of the Abu Dhabi Investment Authority (ADIA) for $1.785 billion. Image Credit: Virendra Saklani/Gulf News

Dubai: Large Middle Eastern Sovereign Wealth Funds (SWFs) are expected to ramp up their infrastructure allocations this year according to Sovereign Wealth Fund Institute (SWFI).

SWFI transaction data for 2021 shows, sovereign wealth funds and public pension plans made a record amount of direct investments into the infrastructure sector.

In 2021, sovereign funds and public pensions directly invested $ 36.4 billion in the infrastructure sector vs. $ 10.65 billion in 2020 and US$ 17.94 billion in 2019. This analysis leaves out infrastructure debt, opting to focus on infrastructure equity.

Wealth funds and large public pensions rotated some assets out of public equities in late 2020 and aggressively targeted real assets, according to SWFI research. Toll roads, roads, and rail investments have also increased in proportion reaching $11.63 billion in 2021 or about 32 per cent of all infrastructure investments.

The COVID-19 pandemic caused the deepest global economic recession in nearly a century and central banks and governments responded with aggressive stimulus. The stimulus created excess inflation as a result, which has forced more asset owners to seek out unlisted infrastructure to protect and grow their wealth.

While airport investing was a major theme for sovereign wealth and public pension capital pre-pandemic, the means of transportation and railways have been leading the charge, especially in 2021.

Bridging the infra lag

Middle Eastern sovereign wealth funds and public pensions have goals to hit asset allocation targets in infrastructure, according to SWFI asset allocation data. Many of these institutional investors go through funds, but the larger pools of capital seek co-investment opportunities. These sovereign investors are trying to avoid mass piles of capital in various infrastructure investments in markets such as Asia, Australia, Europe, and the US Emerging market countries like Indonesia and Turkey.

In December 2021, Sempra inked a deal to sell a non-controlling 10 per cent interest in Sempra Infrastructure Partners (Sempra Infrastructure) to a subsidiary of the Abu Dhabi Investment Authority (ADIA) for $1.785 billion. The transaction implied an enterprise value for Sempra Infrastructure of $26.5 billion, including asset-related debt of approximately $8.6 billion. Sovereign funds like the Qatar Investment Authority (QIA) are eyeing port deal opportunities on the Eastern US coast, while Kuwait PIFSS seeks high-performing infrastructure fund managers.

According to SWFI, SWFs crave toll roads, road, and rail infrastructure investments. This is because infrastructure companies have a proven ability to pass through higher inflation to customers, typically with a 6-month to 15-month lag. A clear majority of infrastructure assets have an explicit link to inflation through regulation, concession agreements, or contracts. These cash-rich sovereign investors need to lockup their capital to earn stable returns that can beat inflation. Thus according to analysts, for 2022 and beyond, it is hard to imagine sovereign investors not playing a larger role in global infrastructure.

SWF assets hit record $31.9 trillion
London: Assets held by the world’s sovereign wealth and public pension funds rose to a record $31.9 trillion in 2021 thanks to rising US stock and oil prices, and investments rose to their highest for several years, an annual report released on Saturday showed.
The report on state-owned investment vehicles by industry specialist Global SWF found that the assets managed by sovereign wealth funds rose 6 per cent over the year to $10.5 trillion, while those of public pension funds jumped 9 per cent to $21.4 trillion.
The report also found that state-owned investors had deployed more money, both in number of deals and by volume, than in any of the previous six years. Some $215.6 billion was spent, almost half of it by sovereign wealth funds.
Singapore’s GIC sovereign wealth fund topped the league, increasing its dealmaking by 75 per cent to $31.1 billion, spread across 109 deals. Over a third of that capital was invested in real estate, especially logistics.
Overall, emerging markets fell behind, attracting only 23 per cent of the capital this year, one of the lowest figures in the last six years, Diego Lopez at Global SWF wrote in the report.
Venture capital investments make up only a small slice of funds deployed by state-owned vehicles overall, but grew by more than 80 per cent this year to $18.2 billion, with Singapore’s Temasek accounting for more than a quarter.
“The pandemic provoked a seismic change in strategy, with a shift towards sectors that are set to soar amid the change in lifestyles, consumer behaviour, and public needs,” Lopez said, pointing to the healthcare, retail, consumer and technology sectors.
The report said investors would continue watching China closely, especially the crackdown on Chinese technology firms.The annual report by Global SWF analysed data from 161 sovereign wealth funds and 275 public pension funds.
-- Reuters