April 6, 2018 / 3:05 PM / in 3 months

Sovereign funds take part in record $42 billion of deals in first-quarter

LONDON (Reuters) - Sovereign investors participated in deals worth a record $42 billion in the first quarter, led by Singapore fund GIC’s involvement in the two biggest transactions, which accounted for $29.6 billion combined.

GIC and the Canada Pension Plan Investment Board (CPPIB) are investing alongside U.S. private equity firm Blackstone (BX.N) in its $17 billion acquisition of a majority stake in the Financial and Risk business of Thomson Reuters Corp (TRI.TO) (TRI.N) - the quarter’s largest deal.

GIC also partnered with Carlyle Group, another private equity firm, to acquire Akzo Nobel’s Specialty Chemicals business for $12.6 billion.

These two massive deals helped boost the overall value of first-quarter transactions to $42.4 billion across 39 deals according to Thomson Reuters data, up from just $18.3 billion across 55 deals in the fourth quarter of 2017.

Javier Capape, a director at the Sovereign Wealth Lab research center in Madrid, said the trend for sovereign investors to work hand-in-hand with private equity managers on co-investments had gathered pace, and accounted for the huge size of the deals.

“More and more, GIC and other funds that are super-sophisticated are able to develop their own deals or at least share the risk as general partners,” he said. “They are talking more like equals.”

The previous record for deal values was $37.5 billion in the third quarter of 2016.

Nikhil Salvi, a senior manager at Aranca, an investment research and analytics firm, said risk appetite had increased over 2017, helped by the rally in listed markets. “That leads to more comfort in aiming for larger deals.”

Asian sovereign wealth funds (SWFs) were once again the most active, with GIC chalking up 14 deals, followed by Temasek with 11 and China Investment Corp with four.

Capape said deal-making remained concentrated among a handful of players because it required large specialist teams to identify, assess and execute transactions.

Funding database PitchBook, which also tracks sovereign wealth fund investments, found that tech remained a big draw. It highlighted GIC’s participation in an $818 million round for Chinese car sales platform Chehaoduo, and a $535 million round for U.S. restaurant delivery platform DoorDash.

GIC was also involved in the third-largest deal alongside Saudi Arabia’s Public Investment Fund (PIF) and other investors. They agreed to pay $5.4 billion for 55 percent of French group AccorHotel’s AccorInvest property business.

Both Salvi and Capape expect PIF to become more active and enter new sectors following the creation of the $93 billion Vision Fund with Softbank, which focuses on tech.

“And whenever they enter a new sector they come like an elephant, providing record capital commitments,” said Capape.

Softbank and Saudi Arabia have already agreed to create the world’s biggest solar power project in Saudi.

“There is a long-term vision for how the economy should shape up, and part of it is a more active role played by PIF ... to help reduce the dependency on oil revenues,” said Salvi.

Other Middle Eastern funds Mubadala and Abu Dhabi Investment Authority were also active. Mubadala Petroleum, wholly-owned by Mubadala, struck a $934 million deal with Eni (ENI.MI) for a 10 percent stake in Egypt’s Zohr gas field.

Following a merger last year with the International Petroleum Investment Co. (IPIC), Mubadala is now joining with Abu Dhabi Investment Council (ADIC) for a combined portfolio worth over $200 billion.

This is expected to improve Mubadala’s global clout and allow it to enter more large-scale deals.

Reporting by Claire Milhench; Editing by Hugh Lawson

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