SPECIAL: Sovereign Funds’ Scope Reaches Spain

Sovereign funds<p>Sovereign funds</p>

It is a fact that foreign money of different nature, from vulture funds to venture capitals or investment funds is flowing right now into the Spanish economy. But what about sovereign funds coming from rich oil exporters countries such as Saudi Arabia, Dubai, Qatar, Norway, Russia or China? These are considered the definitive test for the international investment health in Spain. The general perception is that the country is only in the focus of vulture funds, not core ones, much more conservative, or those sovereign investors. However, Spain has been for last two years a specially attractive destination for sovereign wealth funds, according to Sovereign Funds 2013 report conducted jointly by Spanish organisations ICEX, ESADEgeo and KPMG.

“Spain is alive, really alive. It is within sovereign funds scope,” said Javier Santiso, ESADEgeo vice president during this report’s second edition presentation. Sovereign wealth funds performed an investment record high in 2012 at a global level: about 270 operations, although their value decreased to $60 billion. As a consequence, the fall has also affected Spain, where the funds invested $4,6 billion in 2012 and first sixth months of 2013 against the $8,4 in previous year.

One of the most relevant operations in the Spanish market during 2013 was the one of Singapore’s Temasek fund, which paid €1.4 billion for a 5% stake in oil company Repsol. It points to the first trend that the report identifies: sovereign wealth funds search for investing in Spanish groups, especially those with a strong presence in the emerging markets of Latin America. Last year Qatar fund carried out a similar operation with Banco Santander. “To invest for example in Banco Santander, as did Qatar Holding, is to invest in a European (Spanish) company, but with a very specific profile: what we may refer to as a “Euro-Latin” multinational. In 2012 Banco Santander obtained 50% of its profits from Latin America”, Javier Santiso explains.

On the other hand, the purchase of Barcelona’s Hotel W by Qatari Diar in June of 2013 suggests a second trend about sovereign funds future behaviour in Spain: their growing interest in more complex assets such as real state ones would be.

A third trend in sovereign wealth funds investments in 2013, this time at global level, is their change of direction in terms of target assets. The report helps demolish the myth that these investors are interested only in assets relating to commodities, financial sectors and little else. Proof of this is that in 2012, while sovereign wealth funds’ direct investments plummeted from $89,5 billion to $57,3 billion, investments in the information technology sector increased by 90%, ahead of traditional investment sectors such as energy, property and finance.

This new interests of sovereign wealth funds bring interesting opportunities for the Spanish market too, not only purely financial or related to strategic alliances, but also in the sense that Spain could capitalise on its hosting, throughout almost the whole decade 2010 to 2020, the World Mobile Congress, a major event of the digital and telecommunications industry.

Furthermore, Spain could serve as a sort of hub, an entry point to Europe for certain strategic funds such as Malasya’s Khazanah or Abu Dhabi’s Mubadala that so far have no European office and who could set up in Madrid or Barcelona.

The presence of Norway, which holds the biggest world sovereign wealth fund, with assets of $741 billion in 2013 cannot be ignored. They means, 1.6 times the total capitalisation of the Ibex 35. In 2012, Norges Bank Investment Management (NBIM), which manages Norway’s sovereign wealth fund, said that 2.9% of its total portfolio was invested in Spanish assets (fixed income and equities). In 2011, NBIM had 4.1% of the fund invested in Spain, compared with 4.6% in 2010. In spite of this reduction, Spain still stands eighth on the list of the countries in which the Norwegian sovereign wealth fund has the most investments, ahead even of the Netherlands and Norway’s neighbour Sweden. Particularly in equities, the Norwegian fund has investments in 69 Spanish listed companies (compared with 75 in 2011).

Sovereign funds are unknown entities for some, but they are here and poised to invest their wealth, of which 59% comes from oil and gas exports. Furthermore, they are not much different from other investors. They look for profitability and stability.

Read the report here

 

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