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SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 1 SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 2 Editor: Javier Santiso, PhD Associate Professor, ESADE Business School Vice President, ESADEgeo - Center for Global Economy and Geopolitics SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 3 Index Foreword 5 Executive Summary 7 Direct investing by sovereign wealth funds in 2014: The worst of times, the best of times 11 I Geographic Analysis 21 Sovereign wealth funds in Spain and Latin America: Spain's consolidation as an investment destination 23 Sovereign wealth funds from Muslim countries: Driving the Halal industry and Islamic finance 37 Different twins and a distant cousin: Sovereign wealth funds in Hong Kong, Singapore and South Korea 51 II Sector Analysis 65 Sovereign wealth funds and the geopolitics of agriculture 67 Sovereign Venture Funds 79 The kings of the king of sports: Sovereign wealth funds and football 95 Financing of the digital ecosystem: The “disruptive” role of SWFs…Reconsidered 109 Sovereign wealth funds and heritage assets: An investor’s perspective 121 ANNEX. ESADEgeo Sovereign Wealth Funds Ranking 2015 133 Sovereign wealth funds 2015 Index 3 SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 4 SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 5 Preface SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 6 1. Preface The pattern of world economic growth during 2015 has undergone In both 2014 and 2015 developed and emerging countries' a significant change relative to previous years. While the developed sovereign wealth funds have continued to feature prominently in economies succeeded in shaking off their lethargy and improving significant strategic transactions worldwide. In view of their their economic growth rates, the emerging economies have seen increasingly high profile in world investment, and with the aim of their growth prospects curtailed. Nonetheless, they continue to taking an in-depth look into their strategies and behaviour as have high levels of economic development, and their contribution investors, ESADE Business School, KPMG and ICEX-Invest in Spain to world growth will remain significant. present the fourth edition of the Sovereign Wealth Funds Report. The U.S. and European economic situations have improved thanks In this new edition, the report focuses on the transactions and to the non-conventional monetary policies put in place on both strategies carried out by the sovereign wealth funds during 2014 sides of the Atlantic. The United States, which moved ahead of and the early part of 2015. From a geographical perspective we take Europe in implementing these measures, is expected to normalise a close look at three Asian funds, one each from Singapore, Hong its monetary policy by means of a hike in interest rates this year, Kong and Korea. Also, we analysed funds established in Latin once the improvement in its economy is confirmed. This move has America and Caribbean. From a sector point of view we examine in been anticipated by the market, leading to an appreciation of the detail the activity of the sovereign wealth funds in sectors in which dollar which has put pressure on emerging markets that are they have not traditionally been present: agribusiness, venture dependent on foreign investment. Additional tailwinds such as the capital, digital economy, art and football. We also carry out a fall in the price of oil and new oil and gas extraction techniques preliminary review of funds from countries with Muslim majorities have contributed positively to the recovery of the developed which are driving Islamic finance and the halal industry. economies. As in previous editions, the report includes a specific chapter The emerging economies have started on a path of gradual dedicated to the relations of the sovereign wealth funds with Spain deceleration. China is carrying out a transition of its exports-based and its companies, which have seen some significant transactions in economic model, which has been showing clear signs of fatigue, to recent years and which will continue to be one of the major one based on public investment and domestic consumption. This investment destinations for sovereign wealth funds in the future. change towards a higher quality kind of growth, more stable and sustainable over time, is however leading to lower annual growth rates of around 7%. The Middle East for its part has been affected by increased uncertainty as a consequence of the fall in commodity prices in general, and oil and gas prices in particular. After several years of expansion, the economic models of other emerging markets such as Brazil and Russia have been showing clear signs of burnout, and they have started to feel the effects of their significant imbalances - shortcomings in infrastructure, education and institutional development in Brazil's case, excessive economic concentration in natural resources and overly timid pro- market reforms in that of Russia. Jaime García-Legaz Secretary of State for Trade Javier Solana President, ESADEgeo John Scott President, KPMG España Sovereign wealth funds 2015 Preface 6 SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 7 Executive Summary SovereignWealthFunds15:Maquetación 1 20/10/15 17:57 Página 8 2. Executive Summary This edition of the Sovereign Wealth Funds Report is the fourth one This year's Report is divided into three themed sections. In the first produced by ESADEgeo with the support of KPMG and Invest in of these, we address the main trends shown by sovereign wealth Spain, which is now part of ICEX. We should therefore like to start funds in 2014 (Patrick Schena). In the second, dedicated to by repeating our thanks to both institutions for their support, geographical analysis, we focus on Spain and Latin America (Javier without which this fourth edition of the Sovereign Wealth Funds Capapé), funds from countries with Muslim majorities (Tomás Report would not have seen the light of day. We should also like to Guerrero and José María Fuentes) and funds from Singapore, South thank Javier Capapé and Tomás Guerrero for their excellent work Korea and Hong Kong (Jürgen Braunstein). In the third section, we analysing and coordinating the Report, and the infographics team, study the sovereign wealth funds’ activity by sector: the venture driven by Samuel Granados, who once again has produced some capital sector (Javier Santiso), agriculture (Marc Garrigasait), art magnificent graphic design work. (Andrew Rozanov), the digital economy (Patrick Schena) and football (Javier Capapé). This work is the result of the activities driven by the ESADEgeo- Global Economy team over the past four years. In 2011, Javier Several conclusions can be drawn from the analysis carried out in Santiso advised the Colombian government together with the the Sovereign Wealth Funds Report 2015: then Minister of Finance, Juan Carlos Echeverry, on the creation of • The number of funds and their purchasing power continue to a sovereign wealth fund (now dedicated to innovation). A series of increase, although investment capacity continues to be largely lectures on emerging markets, or the ESADEgeo Globalization Lab, concentrated in four areas: Norway, the countries of the Gulf has also been launched, since many of these countries have Cooperation Council, Southeast Asia and China. At present there institutions of this kind. On 30 May 2011 a Lab was held on are 92 sovereign wealth funds in operation — their assets under sovereign wealth funds with Victoria Barbary, at that time with management reached a new record high of $7.1 trillion. In Monitor Group, London. On 7 February 2012 we welcomed addition, there are 25 countries that are studying the possibility Christopher Balding from Peking University HSBC Business School, of setting up funds. Sovereign wealth funds are playing an Shenzhen, China, who presented his latest book. We also increasingly prominent role in emerging regions such as Africa contributed to a book called Sovereign Investment, edited by Karl and Latin America. P. Sauvant, with a chapter on the political bias of sovereign wealth funds' investments. During the 2013-2014 and 2014-2015 • During 2014 the total number of investments made by sovereign academic years we contributed a chapter on Sovereign Wealth wealth funds was close to 140, involving nearly $90 billion. Many Funds and Latin America to the Global Public Investor 2014 report of them, such as the $2 billion of the QIA (Qatar Investment published by OMFIF, London; we strengthened our collaboration Authority) and the RDIF (Russian Direct Investment Fund), came with The Fletcher School (Tufts University) incorporating Patrick about through joint ventures or co-investments. As in previous Schena's analysis of trends in funds; and we presented an years, investments were concentrated in sectors such as real estate overview of the sovereign wealth funds industry at Sciences Po, ($21 billion), infrastructure ($20 billion) and in countries such as Paris. The Report was the only source specialising in sovereign the United States, which received 30 investments, and China, wealth funds quoted by the World Investment Report 2013, which received 17. However the funds also left their mark in sectors published by UNCTAD, Geneva. We took part in the sixth annual such as start-ups and agriculture and in countries as diverse as International Forum of Sovereign Wealth Funds, held in November Brazil and the United Arab Emirates. 2014; the Report was quoted in the announcement of the three- year strategic plan signed by the IFSWF in Doha. We gave several • On the podium of the most active funds Temasek led the field talks on the role of sovereign wealth funds at various Spanish again for the second consecutive year, with more than 40 universities. Together with two Polish researchers we held a transactions, followed by GIC with 23, maintaining second place; seminar on the investment strategies of Chinese and Middle third placed this year was Norway's sovereign wealth fund GPFG Eastern sovereign wealth funds, which brought together Spain's (managed by Norges Bank Investment Manager, NBIM) which leading experts in the field.