Foreign Exchange

Sovereign wealth funds (SWFs) are shifting investments away from the United States and Europe and into the Middle East and Asian economies, according to a recent report from Monitor Group, a Cambridge, Mass.-based advisory and consulting firm.

This trend indicates that SWFs are not exploiting current U.S. or European downturns, but are focused on building opportunities in potentially lucrative emerging markets in the Middle East and Asia. Indeed, investments in these regions accounted for 68 percent of the total value of all publicly-traded deals during the second quarter.

During that period, SWF investment in North America dropped dramatically, with four deals totaling less than $1 billion transacting. In contract, this region received seven deals totaling $23 billion during the previous quarter. Overall, SWFs continued to invest actively in emerging markets, closing 26 deals and investing $15 billion in BRIC (Brazil, Russia, India, and China) and non-OECD (Organization for Economic Co-operation and Development) countries.

During the second quarter, investment has shifted away from financial services – SWFs carried out 10 deals and invested $4 billion in the financial services sector. In the previous quarter, funds carried out 13 deals totaling $43.4 billion.

Half of the deals by value were in real estate during the second quarter. Not only did real estate have the largest number of deals (12), it also represented the highest investment ($13.7 billion).

"Our transaction data show that SWFs have focused recent equity investment away from volatile geographic markets and sectors, like North America and financial services, and are instead seeking more attractive returns in emerging markets and other sectors, including real estate," says William Miracky, senior partner of Monitor Group.

 

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