PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

AUGUST 2018 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS ABOUT

elcome to Preqin Special Report: Sovereign Wealth Funds. This report contains key highlights from our main 338-page publication, WThe 2018 Preqin Sovereign Wealth Fund Review, released in April 2018.

Preqin’s first Sovereign Wealth Fund Review was launched in 2008 in response to the need for more information on these secretive entities and their investments in the private equity and real estate sectors. Following the success of this inaugural review of the industry, Preqin received hundreds of enquiries from professionals working in all areas of finance and research that were seeking a source of data and information on the more general strategies of sovereign wealth funds. In its 10th edition, we have expanded our publication to review the entire investment profiles of active sovereign wealth funds around the world including activities and allocations to public equities, fixed income, private equity, private debt, real estate, infrastructure, natural resources, hedge funds and other investments. Our dedicated research teams around the world reach out directly to sovereign wealth fund entities and examine public sources to ensure we capture the most accurate and up-to-date information.

The influence of sovereign wealth funds is undeniable; with assets reaching $7.45tn, they have reached a size comparable to that of the entire alternative assets industry, which Preqin today estimates at approximately $8.73tn.

For more information, or to purchase a copy of the full-length 2018 Preqin Sovereign Wealth Fund Review, visit: www.preqin.com/swf

p3 The Importance of Sovereign Wealth Funds

p4 Keynote Address – PwC

p5 Overview of Sovereign Wealth Funds Sovereign Wealth Funds and the Low-Carbon Economy p6 Transition – IE Business School p10 Rise of the Machines: Investing into a Disruptive World – PwC

p12 Public Equities and Fixed Income Activity

p13 Private Equity and Private Debt Activity

p14 Real Estate Activity

p15 Infrastructure Activity

p16 Natural Resources Activity

p17 Hedge Fund Activity

p18 Sample Profile

All rights reserved. The entire contents of Preqin Special Report: Sovereign Wealth Funds, August 2018 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Sovereign Wealth Funds, August 2018 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Sovereign Wealth Funds, August 2018. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Sovereign Wealth Funds, August 2018 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Sovereign Wealth Funds, August 2018 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

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SOVEREIGN WEALTH FUNDS HAVE A WORLDWIDE PRESENCE*

EUROPE NORTH $1,310bn AMERICA ASIA $251bn MIDDLE $3,147bn EAST AFRICA $2,445bn $92bn

LATAM & CARIBBEAN $71bn AUSTRALASIA $138bn

ACCELERATION IN SOVEREIGN WEALTH FUND SUSTAINED APPETITE FOR ALTERNATIVES GROWTH 76% $866bn of sovereign wealth funds invest in at least one + Assets added by sovereign wealth funds over the alternative asset class, up from 74% in 2017. past 12 months. 59% 78 of sovereign wealth funds invest in natural Number of sovereign wealth funds in existence resources, up from 47% and 55% in 2016 and worldwide. 2017 respectively.

2010 21 Real estate and infrastructure remain the Number of sovereign wealth funds established most favoured alternative asset classes among since 2010. sovereign wealth funds.

71% of sovereign wealth funds grew their assets over the past 12 months.

*Figures denote total assets under management by region as at March 2018.

3 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

KEYNOTE ADDRESS - Will Jackson-Moore, PwC

t has been almost 10 years since the development, and can be used as a hedge Development, Stabilization or Capital IGlobal Financial Crisis (GFC) rocked against crises, which is aligned with the Maximization funds. However, what we the world’s financial system. Sovereign long-term investment horizon of SWFs. have seen is that more and more countries wealth funds (SWFs) were not immune are allowing private capital to play a role to the effects and experienced a drop Alternative assets refer to a varied in funding infrastructure due to high debt in assets under management (AUM) of group of investments, including private levels and the need for funding. This can 3.1% in 2009; however, they rebounded equity, credit and real assets. They each clearly be seen through the growth of the strongly following this, with an AUM have different profiles regarding risk/ infrastructure asset class: its AUM rose by compound annual growth rate (CAGR) reward, liquidity, returns and correlation. a CAGR of 16.5% between 2010 and 2016. of 9.1% between 2010 and 2016. This There are a variety of types of funds, Further, given that infrastructure projects strong growth will continue in the coming from Stabilization to Savings, or Reserve are being set up across Asia and Africa, years due to increasing oil prices, newly Investment to Development Funds. Based largely because of mass urbanization established SWFs, and an increasing on their overall objectives, we group or, for example, the new silk road, the tendency for SWFs to derive their wealth them into three broad categories: Capital demand for financing infrastructure from non-fossil sources. In line with the Maximization, Stabilization and Economic projects in those regions is rising. On total growth of assets, we expect their Development funds. Their purposes are the other hand, when we look at more investment strategies to change over time fairly different overall, meaning, of course, developed nations in Europe and the US, to incorporate more alternative assets that their asset allocation will differ. old infrastructure needs to be renewed – into their portfolios. This has already been hence the increased demand for financing observed in the last seven years, with the Economic Development funds, for infrastructure projects in these regions. allocation to alternatives increasing from example, are more focused on boosting What we have also observed, which is 19% to 24% by 2016. a country’s long-term productivity and important to note in this respect, is a rising do so by investing in physical and social interest from governments for private- In 2004, SWFs accounted for only 5% of infrastructure, as well as by diversifying public partnerships. institutional investors’ AUM, totalling the economy. Therefore, investments in $1.9tn. As of 2016, the share had doubled, infrastructure and private equity can be The introduction of alternatives can bring and SWFs’ AUM had risen to more than particularly appealing to them. a new set of risks to the portfolio, including $7.4tn. SWFs recovered particularly quickly illiquidity, complexity and cyclicality. following the GFC, only experiencing an Capital Maximization funds aim to build a Additionally, when investing in alternatives, asset drop in 2009. risk-adjusted capital base for the growth their differences from traditional assets and preservation of national wealth. SWFs mean that new skillsets regarding risk and Despite this strong growth, SWFs have that fall into this category invest with a investment management are needed. faced adverse market conditions since long-term horizon in mind, allowing them 2014. Hydrocarbon prices dropped to withstand short-term market volatility Historically, SWFs’ direct exposure to significantly and, as 60% of these in capital markets and benefit from a commodities has been fairly limited, institutions’ AUM originates from this liquidity premium. These types of funds but we wonder whether with continued source, less capital was injected into SWFs are therefore particularly attracted to asset search for alpha this will change and we and the pre-2014 growth pace could classes such as equities and private equity. may see more interest, particularly given not be maintained. This, in conjunction the liquidity and historical low correlation with the low interest rate environment, Finally, Stabilization funds aim to facilitate with equities for assets such as gold. led SWFs to broaden their investment the fiscal stability of their country’s Although expectations of an interest strategies. By looking at alternative economy, as well as stabilize the exchange rate hike loom over Europe and the US, investments – such as private equity, real rate in certain cases, such as external the increase should remain moderate, estate, infrastructure, commodities and shocks. These funds therefore tend to with institutional investors searching for hedge funds – SWFs have found a way to have short investment horizons and tend yield and diversification still allocating to possibly increase their returns. to be more liquid. Their investments alternatives. then tend to be limited to fixed income SWFs will continue to increase their products. WILL JACKSON-MOORE allocation to alternatives in the future as Global Head of Sovereign Investment the asset classes will provide portfolio Legal and regulatory barriers will Funds and Private Equity diversification to traditional assets such differ from country to country and [email protected] as equity and bonds, support economic between types of SWFs, e.g. Economic

4 © Preqin Ltd. 2018 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/SWF18 OVERVIEW OF SOVEREIGN WEALTH FUNDS

he secretive nature and dynamic Fig. 1: Aggregate Sovereign Wealth Fund Assets under Management, 2008 - 2018 Tinvestment activity of sovereign wealth 8 funds (SWFs) have continued to make 7.45 headline news since the publication of 7 6.51 6.59 6.31 Other Commodity Preqin’s 2017 Sovereign Wealth Fund 6 Review, propelled by their large assets 5.38 under management (AUM) and growing 5 Non-Commodity 4.62 influence in the global economy. Despite 4 3.95 interest rates and oil prices generally ($bn) 3.59 Hydrocarbon 3.22 remaining at low levels over the years, and 3 3.07 uncertainty pervading global markets, SWF 2 Total Assets under assets continue to grow, reaching $7.45tn Management worldwide across 78 funds as at March 1 2018 (Fig. 1). This represents a 13% rise Aggregate SWF Assets under Management under Assets SWF Aggregate 0 from one year ago. Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 SWFs invest across a wide range of asset Mar-15 Mar-16 Mar-17 Mar-18 Source: The 2018 Preqin Sovereign Wealth Fund Review classes (Fig. 2). As SWFs mature, they look for more ways to construct diversified portfolios to achieve their investment Natural resources and infrastructure have New for 2018, Preqin has added objectives. Over three-quarters (76%) the largest proportion of SWFs that invest information on infrastructure deals of this exclusive group invest in at least domestically (91% and 90% respectively, invested in and exited by SWFs, with more one alternative asset class, up from Fig. 3). However, some SWFs have a analysis across investment portfolios, and 74% in 2017. The benefits of exposure strict mandate not to invest in domestic in-depth commentary on this important to alternative assets can include low assets, instead seeking to diversify their sector to help our clients gain the best correlation to traditional asset classes, exposure away from their own economy; intelligence on SWFs. hedging against inflation and the potential for example, Government Pension Fund for high risk-adjusted returns. Alternative Global does not invest domestically to assets are suitably aligned to the long-term avoid overheating the Norwegian economy investment horizons of SWFs, which are and to reduce the effect of oil price better placed to handle illiquid assets than fluctuations on the country. other institutional investors.

Fig. 2: Sovereign Wealth Funds Investing in Each Asset Class, Fig. 3: Sovereign Wealth Funds that Invest Domestically by Asset 2016 - 2018 Class 100% 100% 82% 90% 91% 90% 80% 82% 90% 85% 78%78% 78% 81% 80% 79% 80% 77% 63% 64% 2016 70% 61% 63% 70% 63% 60% 62% 62%62% 59% 60% 55% 55% 60% 2017 52% 50% 39% 47% 50% 38% 35% 40% 35% 33% 40% 32% 2018 30% 30% Each Asset Class

Proportion of SWFs 20% 20% 10% 10% 0% Proportion of SWF Investors in 0% Real Estate Real Real Estate Real Private Debt Private Debt Fixed Income Hedge Funds Fixed Income Hedge Funds PrivateEquity PrivateEquity Infrastructure Infrastructure PublicEquities PublicEquities Natural Resources Natural Resources Source: The 2018 Preqin Sovereign Wealth Fund Review Source: The 2018 Preqin Sovereign Wealth Fund Review

5 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

SOVEREIGN WEALTH FUNDS AND THE LOW-CARBON ECONOMY TRANSITION - Javier Capapé, IE Business School

overeign wealth funds (SWFs) are THE SUPPORT OF SWFs TO TRANSITION funds. However, there is a need to Slong-term and patient capital owners. TO A LOW-CARBON ECONOMY incorporate climate-specific strategies into With long-run investment horizons, All in all, these transformations may be the investment process. SWFs are gradually getting involved in supportive of a stronger stance of SWFs in the sustainable finance movement. Also, the sustainable finance sphere. Enhanced Overall, SWFs invest in green assets by SWFs are government linked or state capabilities and track record may facilitate committing to green debt platforms owned. According to the International the adoption of climate considerations, ($4.3bn), investing in renewable energy Forum of Sovereign Wealth Funds (IFSWF), despite all the heterogeneity of the SWF companies and projects ($3.5bn) or SWFs fulfil three broad, different goals: industry, in line with long-term investment participating in green infrastructure funds long-term savings, fiscal stabilization and horizons and SWFs’ diverse missions. ($2.2bn). They have also backed start-ups economic development. that provide energy efficiency solutions, Yet, how green are SWFs’ portfolios today? produce meat-free burgers and develop The first motivation of SWFs is to attain Over the last three years (2015-2017), lab-grown leather. a certain risk-adjusted financial return the total value of green investments by and to preserve national wealth. In many SWFs has risen to $11bn. This is a tiny In sum, more sovereign wealth funds, cases, this is compatible with fiscal stability fraction of the total assets of the SWF as long-run and diversified institutional goals (i.e. Norway, Kuwait, Abu Dhabi or industry (less than 0.15% of its total investors, are becoming aware of the risks Qatar). In some other cases, SWFs made assets), and represents just 6% of total posed by climate change. In this regard, explicit how the return of the sovereign SWF direct investments in the 2015-2017 the Framework developed by a group of fund includes not only typical financial period, indicating the potential growth SWFs (One Planet SWF Working Group) measures but economic or development of investments in very much needed to accelerate the integration of climate metrics (i.e. Ireland uses the concept of renewable energy companies and projects, change analysis into the management of the “double bottom line” objective). Yet, green infrastructure funds or clean energy SWFs’ asset pools seems very timely. This the degree of motivations and goals of start-ups (see inset: page 7). group of SWFs is formed by Abu Dhabi SWFs vary substantially. According to the Investment Authority, Kuwait Investment IE Sovereign Wealth Lab Report, supported In the past 18 months, SWFs from Norway, Authority, New Zealand Superannuation by ICEX, there are 92 SWFs established in New Zealand and France have divested Fund, Norges Bank Investment 57 countries. their portfolios from companies with Management of Norway, Public Investment high levels of GHG emissions – valued Fund of the Kingdom of Saudi Arabia SWFs are diverse and changing too. For at $2.9bn. Yet, it is important to note and Qatar Investment Authority, which example, in 2012, SWFs invested just 9% that only Government Pension Fund collectively manage over $3tn in assets. of their assets under management (AUM) Global from Norway and New Zealand This group has identified three main in private markets such as real estate, Superannuation Fund have fully integrated principles to address climate change: infrastructure or private equity funds. At climate risks into their investment the end of 2017, this figure had risen to processes and strategic asset allocations. 1. Alignment. Build climate change 30%. This significant growth of real assets It is of no surprise that these two countries considerations, which are aligned with in SWF portfolios has increased in-house have been actively leading the One Planet the SWFs’ investment horizons, into capabilities and attracted investment initiative (see below), given their expertise decision-making. talent from mature financial plazas to on integrating climate-change-related risks 2. Ownership. Encourage companies lead investment teams on infrastructure, into their investment practice. to address material climate real estate or venture capital. In the end, change issues in their governance, this exposure to real assets has helped Other SWFs from emerging and developing business strategy and planning, risk to professionalize SWFs’ workforces, to economies, such as the United Arab management and public reporting to enhance governance and organizational Emirates (UAE), Morocco, Singapore, promote value creation. settings, and to engage further with co- China and Saudi Arabia, are investing in 3. Integration. Integrate the investment partners. green infrastructure assets directly or consideration of climate-change- via commitments to green infrastructure related risks and opportunities into

1Green investments include commitments to green debt funds and platforms, renewable energy projects, green infrastructure, green startups and green agriculture funds. It excludes the value of companies divested through of decarbonization strategies.

6 © Preqin Ltd. 2018 / www.preqin.com Figure 2 Green investments VALUE (US$M) by SWFs DIRECT IMPACT CONTRIBUTION TO INVESTMENT PLATFORM Green debt fund Renewable Green Green ESG Green Research Other & platform energy infrastructure startup Portfolio agriculture fund agreement 160 4,300*** 3,465 2,237 375 300 266 N/A SWFs exposure to green assets (2015-2017) (US$M) PORTFOLIO Government Pension Fund Global DECARBONIZATION 2,100* Caisse des Dépôts State Administration of Foreign Exchange (GLOBAL) GLOBAL et Consignations 3,000*** 108

Abu Dhabi Investment Authority (ADIA) New Zealand 1,381 Superannuation Fund 693 Mubadala UK Mumtalakat RUSIA 1,300 N/A Several SWFs Russian Direct Hong Kong Monetary Authority–Exchange Fund 250 Investment Fund 1,000*** IRELAND 142 USA Ireland Strategic GIC GLOBAL Investment Fund 852 Alaska Permanent 87 Fund Corporation CENTRAL ASIA China Investment Corporation 200* INDIA Samruk-Kazyna JAPAN Temasek N/A 550 Korea Invest. 75* GIC Corporation N/A Ithmar Capital Mubadala 300 TAIWAN 1,300* SAUDI ARABIA 500 Abu Dhabi New Zealand Public Investment Superannuation Fund Inv. Authority Temasek Future Fund SENEGAL Fund 1,000* N/A N/A Abu Dhabi 300* 400 FONSIS 160 Inv. Authority Abu Dhabi AFRICA 200 Temasek Inv. Authority PHILIPPINES NIGERIA Ithmar capital GIC 181 375 Nigeria Strategic 500** GIC EMERGING MARKETS Investment Authority 202 Future Fund 650** 266* 40 Korea Investment Corporation SINGAPORE 300 China Investment Corporation Nigeria Sovereign Investment Authority 550** Hong Kong Monetary 266 AUSTRALIA Authority–Exchange Fund Future Fund 1,000 400 Alaska Permanent Fund Corporation State Administration of Foreign Exchange 200 3,000*** FONSIS Several SWFs 160 300***

Russian Direct Investment Fund 142 *Total deal value including other coinvestors Ireland Strategic Investment Fund **Author's estimate ***Commitments to several IFC green-debt platforms. Not realized investments. 87

Source: Author’s elaboration. PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

investment management to improve measuring techniques, or the costs of Thus, the growing alignment between the resilience of long-term investment being active owners (exercising voting SWFs’ long-term investment goals and real portfolios. rights or engaging with companies) can assets facilitates this purpose. derail SWFs from acting in a greener way. THE CHALLENGES OF SWFs IN GOING Higher transparency and standardization SWFs have strong linkages with GREENER would help, as well as sharing the best developing countries The estimates about SWFs’ involvement cases from SWFs’ active owners. From the list of the largest 25 SWFs by in green and sustainable opportunities assets, 22 are located in developing show that SWF participation remains low. Operating in developing countries: countries in the Middle East or North What are the reasons derailing SWFs from Sourcing enough small-scale deals Africa, or Southeast, Central and East Asia. investing more strongly in long-term assets SWFs have invested in large-scale green In 2017, emerging markets represented that support a transition to a low-carbon infrastructure projects such as wind farms 30% of all SWF infrastructure investments. economy? A recent working paper by the or solar plants. Yet, most Sustainable India is a growing target among SWFs. UN Environment details four key factors Development Goals (SDGs) will be Thus, both the sources of SWFs’ capital derailing SWFs from green investments. achieved through small and micro actions and expertise are rooted in developing in developing economies. But to match contexts. SWFs are gradually adding The uncertainty of green portfolio large capital owners with these multiple developing countries to their geographical performance small capital needs remains a challenge. asset allocation strategies. Despite the fact that recent research The growing number of SWFs participating suggests greener portfolios provide higher in co-investment platforms, or engaging SWFs have an influential role over returns, most SWFs are still reluctant to directly with regional and local experts, governments and regulators divest from high-emitting sectors such brings some hope to the resolution of SWFs in most markets, especially in as oil & gas. SWFs, as other institutional this typical conundrum of institutional developing economies, play a central role investors such as pension funds or investors in developing markets. in the country’s financial architecture. This university endowments, fulfil a fiduciary position would help to foster reporting role. Their main mission is to preserve WHY SWFs CAN PLAY A STRONG ROLE IN of material climate-related risks and to and grow wealth and obtain a certain PROMOTING SDGs act as role models for other institutional risk-adjusted long-term return. Hence, A growing number of SWFs are ready public and private investors. SWFs have SWFs without climate-related investment to invest in sustainable assets today. incentives to drive financial institutions criteria face difficulties in justifying Moreover, there are, at least, five reasons towards long-term aligned practices and investments that do not provide a similar to think that SWFs will play a larger role regulations. The relationship with other risk-adjusted return. The consideration of in the transition to a low-carbon and stakeholders may motivate a stronger climate-change-related risks (regulatory, sustainable economy: demand for sustainability investment technology disruption, physical and criteria among institutional investors. obsolete assets) among SWFs is still SWFs hold enormous pools of capital nascent. This is required to bridge the huge SWFs are influential owners investment gap to achieve the SDGs. The Given their equity positions in companies Weak political demand current financing gap to accomplish the around the globe, a more active SWFs face little pressure to go green SDGs is estimated to be $2.5tn per year ownership role, as promoted by the One due to the lack of national sustainable to 2030. The mobilization of large-scale Planet Group, would help companies to development policies or weak social players would allow to fulfil these goals. address material climate change issues demand for greener portfolios. There is through governance, business strategy still a need to educate stakeholders about SWFs have patient capital and planning, risk management and positive-impact finance frameworks. Patient capital aligns with long-run projects public reporting. SWFs with economic and real assets. The widest capital gap of development goals, following a holding Costs of carbon footprint analysis SDGs is linked to infrastructure and clean SWF’s model, directly influence their fully The high costs of analyzing a portfolio’s energy. These two sectors have spill-over or partially owned subsidiaries. carbon footprint, given the lack of effects which would contribute to multiple standards for risk disclosure and SDGs, particularly in developing countries.

IE BUSINESS SCHOOL Javier Capapé, PhD, is Director of the Sovereign Wealth Lab at IE Business School & Co-Editor of the Sovereign Wealth Fund Reports since 2012.

IE Business School is a graduate school located in Madrid, Spain. IE Business School’s International MBA program holds the No. 8 position worldwide, as well as being No. 4 in Europe and No. 1 in Spain, in the FT’s 2017 ranking of MBA programs.

www.ie.edu

8 © Preqin Ltd. 2018 / www.preqin.com THE FACTS THE 2018 PREQIN SOVEREIGN WEALTH FUND REVIEW The indispensable, comprehensive guide to sovereign wealth funds and their investment activity.

VIEW EXAMINE IDENTIFY detailed pro les for 78 in-depth analysis on key key SWF contacts and their sovereign wealth funds trends in SWF activity by contact information located around the world asset class and region

Produced in association with PwC, the Review contains exclusive information gained via direct communication with sovereign wealth funds and their advisors, plus valuable intelligence from  lings,  nancial statements and hundreds of other data sources.

For more information or to purchase the book, please visit: www.preqin.com/swf 10 Hedge Fund Spotlight | June 2018 © Preqin Ltd. 2018 / www.preqin.com PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

RISE OF THE MACHINES: INVESTING INTO A DISRUPTIVE WORLD - Matthew Alabaster, PwC

“What about weaponized nanobots?” my the investment hypothesis depends on picking its way with misplaced colleague asked, and it was at this point I predicting the world 20 years from now? confidence through the near future. realized I was in a different realm of long- As one client said, “we put a huge effort Buyside advisers unpick this version term planning. into understanding year zero, quite a lot and propose some incremental on years 1-5, but almost nothing on years sensitivities – slightly lower market We were running a workshop with the 6-20”. Another told me that it was about growth, slightly higher inflation – to executive board of one of my client’s avoiding shoulder-shrug in response to form their own version of the future. portfolio companies, facilitating a difficult questions: “When my investment Dozens of official versions take shape conversation about disruptive threats and committee asks me what would be the on laptops across the City, each opportunities. The exam question was impact of AI on this business, I have to proclaiming itself the one true ‘base ‘what can knock this business off course?’ have an answer”. case’. The reality is that unless you are happy taking a call on what the It is a question that more and more of our But thinking about disruptions requires a world will be like 10 years from now, clients are asking. And for good reason: different mindset. The traditional starting investment hypotheses need to be the world is changing faster, and with point for diligence or business planning is robust enough to survive a range of greater uncertainty, than arguably at any the past: understand what has happened different futures. time over the last thirty years. Exponential over the last five years, and you are technologies such as Artificial Intelligence halfway to predicting the next five. But the 2. Work backwards (AI), Blockchain and autonomous vehicles point about disruptions is that they are If extrapolating the past only gives are set to revolutionize many industries non-linear: you cannot spot the impact of you a single future, you have to work and take many of our jobs; the effects of AI in the financial statements of a logistics backwards. Imagine some alternative megatrends such as urbanization, climate business; you cannot see the impact of futures and work back. We have change and resource scarcity are starting autonomous vehicles in the P&L of a developed four world scenarios that to bite in unpredictable ways; and a new motorway service station; and you cannot we use as starting points for our political discourse in developed markets see the risk of social change in the track clients. One, called the ‘Rise of the (with Brexit as its gestating progeny) is record of an airport. And these are all Machines’, shows a world where rapid starting to challenge preconceived ideas direct, ‘first-wave’ disruptions. We certainly technological advancement is used about the inevitability of globalization and cannot extrapolate out to the ‘second in a centralized way, for example for rising living standards. wave’ of indirect disruption as automation security and national self-reliance reduces spending in the economy. But all purposes. We have developed a All-in-all, there is a lot going on. these threats are real, and could have a Virtual Reality experience to immerse material impact on the value of the assets our clients in this scenario to let them Some investors are used to such over the next decade. experience and react to one possible challenges. Venture capital thrives on future. disruption, of course. And private equity So how can investors build disruption- invests into fast-cycle industries by thinking into their deal-doing? Here are Our scenarios are a helpful starting using a balancing approach to risks and some suggestions from some clients who point, and also serve a useful purpose opportunities. But it is the longer-term are doing just that: for getting our clients in the right investors and their portfolio companies mindset, but in reality scenarios that are having problems adjusting. 1. Forget the ‘official version of the need to be developed specifically Pension funds, infrastructure funds and future’ for the business being looked at. sovereign funds often look for stable, Most deal-doing is underpinned by We have done a lot of work with a long-term, defensive assets, for which the the idea that there is a single, tightly regulated monopoly in the UK which past is a reliable guide to the future. For defined scenario that represents has developed four different political these businesses, the financial models can the target and its markets over the and technological scenarios that have look out more than 20 years, confidently next three to five years. Vendors put radically different implications for asserting cash dividends in perpetuity. forward their own official version of their own role and business model. But in our changing world, how can an the future in the form of financial They have then worked backwards, investment be considered low risk if projections: a single, precise line tracing four lines back to the present,

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in order to understand how that scenario might occur and what the ‘weak signals’ are that would indicate which path we are on.

3. Give the team the confidence to have the conversation “Just don’t mention flying cars,” a client relationship partner instructed me on the way to a meeting with an infrastructure fund two years ago. He was worried that we would look like wackos in front of his client. Well since then, Airbus, Boeing, Uber and Google founder Larry Page have all announced flying car programmes. So not so wacky after all! In the dry, A single version of the future – PwC’s immersive Virtual Reality experience that brings some analytical world of due diligence and disruptive technologies to life. valuation, having a conversation about future disruptions can feel uncomfortable. Senior staff need to of underlying disruptive trends and scenario. We have developed a tool encourage their teams to think in this technologies, including our ‘essential that uses AI (yes, our jobs are under way, and in particular to seek input eight’ emerging technologies. threat too!) to scan the world’s media from the most junior. After all, the Investors can review the impact of in 80 different languages and, if we youngest people on the team are each of these across the portfolio and train it correctly, provide alerts that more closely connected to the future consider the appropriate mitigation: can serve as an early warning signal than the most senior. When it comes investing in something to hedge for a particular disruption. to disruptions, normal hierarchy does against a particular risk, avoiding not apply. ‘doubling down’ on a particular Ultimately this is about a bringing a disruptive risk, or more passive different lens to deal-doing and asset 4. Use the portfolio strategies around monitoring and management. Standing in the future and Not all businesses will be able to managing risks before they become looking back at the target, with some respond to disruption. Under certain critical. informed options about what the world scenarios, the future for individual might be like, is not going to replace a DCF business may look very challenging. 5. Forewarned is forearmed model any time soon. But it is a healthy You may take the view that this Nobody can predict the future with discipline, especially for investors with long makes the investment too risky; or certainty. But we can give investors hold periods. There are plenty of tools and you might take the view that you can and their investments a competitive frameworks to help you do it effectively, balance this risk across your portfolio. edge by helping them to spot trends but even having the conversation is a step Financial investors have the luxury of before everyone else. So once we forward. diversification, of owning a number of have identified the specific scenarios assets that have different risk profiles. or disruptions that represent threats Weaponized nanobots? You heard it here We have worked with one fund to or opportunities, we have learned first. understand the overall exposure of to listen for the ‘weak signals’ that its existing portfolio to a number serve as predictors of that particular

MATTHEW ALABASTER PwC Partner [email protected]

11 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS PUBLIC EQUITIES AND FIXED INCOME ACTIVITY

raditional asset classes such as public Fig. 4: Regional Preferences of Sovereign Wealth Funds Investing in Public Equities Tequities and fixed income are regarded 90% 85% as important components within SWFs’ 80% 78% 78% 78% investment portfolios: 82% and 78% 68% 70% 64% 65% of SWFs invest in these asset classes 60% respectively. 53% 53% 50% PUBLIC EQUITIES 40% The potential for significant yield, liquidity

Public Equities 30% and portfolio diversification are just 20% some of the reasons why SWFs regard

Proportion of SWF Investors in 10% public equities as an attractive form of 0% investment. Asia Other MENA Global North Europe Foreign America Markets Domestic Emerging

Regional Preference Source: The 2018 Preqin Sovereign Wealth Fund Review

Fig. 5: Sovereign Wealth Funds Investing in Fixed Income by Bond Type and Grade 100% 100% 96% 82% of SWFs invest in public equities. 90% 84% Sixty-eight percent of SWFs invest in public 80% equities on a global scale (Fig. 4). A broad 70% approach may be taken to mitigate the risk 60% 54% of affecting domestic stock markets while 50% acting as a diversification tool. Ireland

Strategic Investment Fund, however, Fixed Income 40% operates a global mandate to maintain 30% capital growth and address the short- 20% Proportion of SWF Investors in term liquidity needs of the fund while it 10% transitions to a fully Irish portfolio. 0% Government Corporate Investment Grade High Yield FIXED INCOME As shown in Fig. 5, almost all (96% of) Bond Type/Grade Source: The 2018 Preqin Sovereign Wealth Fund Review SWFs target government bonds. A large proportion (84%) also look to invest in bonds issued by companies, which, while In contrast, some funds look to emerging carrying greater risk than government markets, citing increased liberalization bonds, have the potential for greater measures and activity in the service sector returns and increased diversification. as key motives. Significantly, all SWFs that invest in fixed income target investment-grade bonds, Public equities are likely to remain a key signifying a preference for bonds with a part of SWFs’ portfolios, as many will look lower risk of defaulting. to rebalance their portfolios and diversify 61% of SWFs are under their target allocation to fixed income. against macroeconomic shocks in their North America and Europe remain the domestic economy. Given that 61% of most targeted regions for fixed income SWFs are below their target allocation to investment due to their mature economic fixed income, there remains potential for markets and high levels of transparency. further inflows into the asset class.

12 © Preqin Ltd. 2018 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/SWF18 PRIVATE EQUITY AND PRIVATE DEBT ACTIVITY

WFs have long been recognized as Fig. 6: Strategy Preferences of Sovereign Wealth Funds Investing in Private Equity a major source of capital for private 80% S 72% equity fund managers, while many SWFs 70% 70% 65% 63% gain exposure to private debt through 60% their private equity allocations. 50% 37% PRIVATE EQUITY 40% 35% The largest proportion (72%) of SWFs 30%

Private Equity 22% target venture capital funds (Fig. 6), 20% overtaking buyout funds, which were 10% sought by the greatest proportion of SWFs Proportion of SWF Investors in 0% in 2017. Investments in the venture capital sector allow SWFs to nurture domestic Funds Capital Fundof Buyout Venture enterprise and support economic Growth Other Turnaround

development initiatives. Europe remains Secondaries the most appealing region for private Equity Private equity investment, with many established Strategy Preference Source: The 2018 Preqin Sovereign Wealth Fund Review fund managers located in the region. A similar proportion of SWFs operate a global mandate in search of access Fig. 7: Strategy Preferences of Sovereign Wealth Funds Investing in Private Debt to a wider range of fund strategies and 80% 73% opportunities. Seventy percent target Asia, 70% 67% a sign that many SWFs continue to search for value outside the developed markets. 60% 57% 53% 50% In recent years, the private equity secondary market has seen increased 40% activity from SWFs, with many utilizing the

Private Debt 30% market as a mechanism for restructuring portfolios that have become unbalanced. 20% 17% 10% Kuwait Investment Authority, for example, Proportion of SWF Investors in 10% sold a portfolio of buyout fund stakes to Coller Capital in October 2017. Some SWFs 0% Direct Distressed Mezzanine Special Venture Debt Fund of have also used the secondary market as Lending Debt Situations Funds an opportunity to access fund interests further along in a fund’s lifecycle at a Strategy Preference Source: The 2018 Preqin Sovereign Wealth Fund Review

SOVEREIGN WEALTH FUNDS INVESTING reduced price, while also mitigating the OUTLOOK IN PRIVATE EQUITY vs. PRIVATE DEBT J-curve effect. SWFs have significantly increased their average target allocation to private equity 60% PRIVATE DEBT from 7.8% of total assets in January 2013 Seventy-three percent of SWFs target to 16.6% in January 2018, with these mezzanine vehicles, likely due to the investors continuing to break barriers 38% strategy’s well-established standing in the and, at times, act as cornerstone investors private credit market, while many also in funds. Meanwhile, private debt will favour distressed debt and direct lending remain attractive to SWFs in markets funds (67% and 57%, Fig. 7). New Mexico where interest rates remain low, and State Investment Council’s private debt banks continue to face challenges owing to Private Private investments in 2017 included a $100mn regulatory restrictions placed upon them. Equity Debt commitment to Golub Capital Partners 11.

13 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS REAL ESTATE ACTIVITY

WFs are often cornerstone investors Several trends have emerged in recent estate market in December 2017, acquiring Sin the real estate industry, with ever- years around the type of properties a 70% stake in five Tokyo-based properties growing AUM and increasing influence acquired by these institutions, with more in a joint venture with Tokyu Land on financial markets around the world. investments made in niche real estate Corporation for JPY 92.75bn ($865mn). The majority (62%) of SWFs invest in real (specifically student accommodation), estate. This proportion includes some of hospitality assets and logistics facilities. In While investors have faced challenges the world’s largest, such as Government June 2017, China Investment Corporation and uncertainty around a potential Pension Fund Global (GPFG) and GIC, acquired Logicor, a pan-European market downturn, real estate remains which each allocate over $20bn to the logistics company, from Blackstone Group an important component of many SWFs’ asset class. for €12.25bn – the largest real estate portfolios. Despite some large economies transaction completed that year (Fig. 10). starting to raise interest rates, the disparity Around four in five SWFs gain exposure between returns generated by real estate to real estate through direct investments, The majority (62%) of SWFs investing and fixed income remains attractive. which provide them with greater in real estate have a global reach for autonomy in the management of their their investments (Fig. 9). North America SWFs appear satisfied with real estate assets (Fig. 8). Sixty-eight percent invest and Europe remain key regions for and the value it provides: several of these in private real estate funds, which allow investment, each targeted by 68% of funds have been involved in real estate institutions to leverage the expertise of SWFs, representing an eight- and five- transactions worth over $1bn throughout fund managers and generally offer greater percentage-point rise respectively from 2017 and in early 2018. Such activity diversification. In February 2017, Qatar 2017. Asia remains targeted by a notable highlights their presence within the Investment Authority committed $250mn proportion (55%), including GPFG, which industry as a major source of institutional to ArthVeda STAR Fund II. made its first foray into the Asian real capital.

Fig. 8: Sovereign Wealth Funds Investing in Real Estate by Route Fig. 9: Regional Preferences of Sovereign Wealth Funds Investing to Market in Real Estate

90% 70% 68% 68% 81% 62% 80% 60% 55% 68% 70% 50% 47% 47% 60% 40% 50% 32% 30% 40% Real Estate 34% 20% 30% 10% 20% Proportion of SWF Investors in 0% 10% Asia Proportion of SWF Investors in Real Estate Other Global

0% MENA North Europe America Markets

Direct Listed Unlisted Emerging Route to Market Regional Preference Source: The 2018 Preqin Sovereign Wealth Fund Review Source: The 2018 Preqin Sovereign Wealth Fund Review

Fig. 10: Sample Real Estate Transactions Completed in 2017-2018 Involving Sovereign Wealth Funds Asset Buyer(s) Seller(s) Deal Size (mn) Deal Date Logicor China Investment Corporation Blackstone Group 12,250 EUR Jun-17 China Investment Corporation, Canary 20 Fenchurch Street LKK Health Products Group Wharf Group, Morgan Stanley Real 1,280 GBP Jul-17 Estate Investing, Landsec The Grand Wailea Blackstone Group GIC 1,100 USD Jan-18 Washington, DC, Diversified Portfolio GIC, Beacon Capital Partners Unidentified Seller(s) 1,050 USD Feb-17 Rockefeller Center China Investment Corporation CPP Investment Board 1,030 USD Jan-17

14 © Preqin Ltd. 2018 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/SWF18 INFRASTRUCTURE ACTIVITY

nfrastructure investments are targeted Fig. 11: Sovereign Wealth Funds Investing in Infrastructure by Route to Market Iby the majority (64%) of SWFs, which look 100% to deploy their significant AUM in projects 92% 90% with the aim of stimulating their domestic 80% economies and meeting their development 70% objectives. Furthermore, the inherent 63% long-term lack of liquid assets tied to 60% infrastructure projects and lower liability 50% risk complement the investment horizons 40%

of SWFs and their longer-term objectives. Infrastructure 30% 20% The majority (92%) gain exposure to the 20% asset class through direct investments Proportion of SWF Investors in 10% (Fig. 11), which reflects the primary 0% aim of SWFs to achieve economic and Direct Listed Unlisted social development goals through the construction of new infrastructure assets, Route to Market Source: The 2018 Preqin Sovereign Wealth Fund Review and the expansion and modernization of current ones. Almost two-thirds (63%) access the market through unlisted funds; in more mature, established assets, as invest in ports, terminals, transportation Alaska Permanent Fund Corporation well as spreading risk across a range of and logistics businesses in India. previously committed $500mn to Global projects. Infrastructure Partners III, the largest The industry continues to present unlisted infrastructure fund closed to date. Over half (57%) of SWFs maintain a challenges in the form of increasing global scope for their investments, while competition for assets and the resulting Greenfield assets remain favoured by the same proportion target Europe and effect of rising asset prices, which are likely the majority (84%) of SWFs (Fig. 12). Such emerging markets (Fig. 12), with interest to eventually eat into net returns. SWFs are projects naturally carry a higher degree in the latter on the rise. In January 2018, also presented with fewer opportunities of risk but can potentially deliver stronger DP World, a subsidiary of Dubai World, to acquire core infrastructure assets and yields. Brownfield and secondary-stage and India-based National Investment may need to expand their reach to regions investments are also targeted by many and Infrastructure Fund announced the outside the developed markets in search SWFs, illustrating the appeal of investing creation of an investment platform to of relative value.

Fig. 12: Sovereign Wealth Funds Investing in Infrastructure by Fig. 13: Sovereign Wealth Funds Investing in Infrastructure by Project Stage Regional Preference

90% 60% 57% 57% 57% 84% 80% 51% 76% 50% 49% 49% 43% 70% 67% 41% 40% 60%

50% 30%

40% Infrastructure 20%

Infrastructure 30% 10% 20% Proportion of SWF Investors in

Proportion of SWF Investors in 0% 10% Asia OECD Other MENA

0% Global North Europe America Markets

Greenfield Brownfield Secondary Stage Emerging Project Stage Regional Preference Source: The 2018 Preqin Sovereign Wealth Fund Review Source: The 2018 Preqin Sovereign Wealth Fund Review

15 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS NATURAL RESOURCES ACTIVITY

any SWFs have created significant Fig. 14: Sovereign Wealth Funds Investing in Natural Resources by Route to Market revenues from the extraction of M 90% 84% hydrocarbons (such as oil and natural gas), 80% while these funds have also recognized the value of additional natural resources 70% investments not only in energy but in 60% 58% agriculture/farmland, metals & mining, timberland and water. 50% 40% Eighty-four percent of SWFs active in 30% natural resources gain exposure to the Natural Resources 20% asset class through direct investments, 13% Proportion of SWF Investors in while a growing proportion target unlisted 10% funds (Fig. 14). Australia’s Future Fund made several investments in 2017, 0% Direct Listed Unlisted including its acquisition of the 200 MW Silverton Wind Farm project in western Route to Market Source: The 2018 Preqin Sovereign Wealth Fund Review New South Wales alongside AGL Energy and QIC. Fifty-three percent of SWFs target In addition to a focus on energy, most All SWFs currently investing in natural investments on a global basis, primarily SWFs also target agriculture/farmland, resources target the energy sector (Fig. 15), with the aim of diversifying their portfolios water and metals & mining assets. It is with sustained appetite partly reflecting (Fig. 16). The same proportion also look to likely that these institutions will continue the number of opportunities available in invest in emerging markets, with Middle to diversify their portfolios away from an the industry, which typically span a wider Eastern funds such as Dussur well placed overreliance on energy, which may result range of assets compared to other natural to develop these types of projects locally in further investment across other sectors resources sectors. In October 2017, Public through direct investment. In May 2017, within the natural resources industry. Investment Fund and SB Investment Dussur signed a joint venture agreement Advisers, via its $100bn SoftBank with GE, worth more than $270mn, which Vision Fund, signed a memorandum of will help the SWF to localize gas turbine understanding to create ‘Solar Energy Plan manufacturing and establish a global 2030’, a new framework for developing the industrial supply chain for the energy Saudi Arabian solar energy sector. sector.

Fig. 15: Strategy Preferences of Sovereign Wealth Funds Fig. 16: Regional Preferences of Sovereign Wealth Funds Investing in Natural Resources Investing in Natural Resources 100% 60% 100% 53% 53% 90% 80% 50% 47% 44% 70% 42% 62% 62% 40% 60% 40% 51% 36% 50% 40% 33% 30% 30% Natural Resources 20% 20% 10% 2% Natural Resources Proportion of SWF Investors in 0% 10% Proportion of SWF Investors in Water Energy

Mining 0% Metals&

Farmland Global North Europe Asia MENA Other Emerging Agriculture/ Timberland America Markets Fund of Funds Strategy Preference Regional Preference Source: The 2018 Preqin Sovereign Wealth Fund Review Source: The 2018 Preqin Sovereign Wealth Fund Review

16 © Preqin Ltd. 2018 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/SWF18 HEDGE FUND ACTIVITY

onstituting a small group of SWFs Fig. 17: Top-Level Strategy Preferences of Sovereign Wealth Funds Investing in Hedge Cinvesting in hedge funds, these large Funds state-owned investment vehicles account 100% 93% for 10% of all institutional capital invested 90% 85% 81% 78% in the asset class, and rely on the industry 80% 70% 70% 63% for a more diversified portfolio. 60% 56% 50% 44% The proportion of SWFs investing in hedge 40% 30%

funds has steadily grown in recent years in Hedge Funds 20% with 35% currently allocating to the asset 10% class, up from 33% and 32% in 2017 and Proportion of SWF Investors 0% 2016 respectively. The largest allocator in the group is Abu Dhabi Investment Authority, which allocates approximately Strategies CTAs Strategies

$62bn. Event Driven Relative Value Relative Multi-Strategy Niche Strategies Niche CreditStrategies Equity Strategies MacroStrategies

Almost all (93% of) SWFs target hedge Futures/ Managed funds that employ equity strategies (Fig. Top-Level Strategy Preference Source: The 2018 Preqin Sovereign Wealth Fund Review 17), in recognition of the benefits of the versatility and durability offered by the top-level strategy. More than four in five Fig. 18: Regional Preferences of Sovereign Wealth Funds Investing in Hedge Funds SWFs target multi-strategy funds, including 100% Korea Investment Corporation, which 89% 90% looks to spread the risk associated with a 80% single-strategy hedge fund across an array 74% 70% of investment vehicles. 63% 63% 60% 56% A diversified approach in terms of 50% 41% structure is also adopted by a growing 40% Hedge Funds proportion of SWFs: 68% look to invest in 30% 26% hedge funds through both direct and fund 20%

of hedge funds vehicles, which may reflect Proportion of SWF Investors in 10% the way in which these institutions are growing their expertise in the asset class. 0% Furthermore, 52% of SWFs utilize managed Global North Europe Asia MENA Other Emerging America Markets account structures, which allow them to exhibit greater control over their hedge Regional Preference Source: The 2018 Preqin Sovereign Wealth Fund Review

SOVEREIGN WEALTH FUNDS INVESTING IN HEDGE FUNDS fund investments and to benefit from points respectively), the same can be said 35% greater transparency in their underlying for those seeking investment in emerging 32% 33% holdings. markets, rising from 54% to 63% over the same period. Eighty-nine percent of SWFs invest in hedge funds on a global scale (Fig. With many SWFs below their target 18), illustrative of the importance of a allocations to hedge funds, these investors regionally diversified portfolio for these will likely remain an important source of institutions. While there has been a capital for hedge funds in the long term. notable proportional rise in SWFs targeting North America and Europe from the previous year (seven and five percentage 2016 2017 2018

17 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS -       Global North America Europe Asia MENA Other Emerging Markets    

In Q4 2016, the Government of Oman transferred its 51% stake in country’s largest telecoms provider, Omantel, to OIF. The move was part of an effort by the Finance Ministry to harness the capabilities and resources of OIF better manage state assets.

investment portfolios and activities. activities. and portfolios investment

investment profiles for 78 sovereign wealth funds, with detailed information on their their on information detailed with funds, wealth sovereign 78 for profiles investment

The full-length edition of The 2018 Preqin Sovereign Wealth Fund Review contains full full contains Review Fund Wealth Sovereign Preqin 2018 The of edition full-length The REVIEW ALL PROFILES FOR 78 SOVEREIGN WEALTH FUNDS GLOBALLY FUNDS WEALTH SOVEREIGN 78 FOR PROFILES ALL REVIEW 2016 STRATEGY (CONT.) State-owned investment arms within Oman, such as OIF, are trying to increase the involvement of private sector in major economic development projects to counteract the financial strain of low oil prices seen in recent years. In early 2017, OIF began the process of merging with State General Reserve Fund Sultanate Oman. The fund will not disclose details of its investments until the merger has been concluded. EQUITIES OIF is an active investor in public equities and will invest on a global scale medium- long-term projects. The sovereign wealth fund has a preference for mid-cap and large-cap equities. Recent Key Event: Mid Cap Small Cap Indexed FIXED INCOME OIF has a small allocation to fixed income securities. The portfolio is entirely invested through investment-grade sovereign bonds, which gives the wealth fund exposure on a global scale. EQUITIES PREFERENCES Large Cap www.oif.om -         Target (%) Year Founded: 2006 [email protected] [email protected] [email protected] Email -         Total Funds under Management: $6,000mn +968 932 149 78 +968 246 430 59 +968 246 430 05 Telephone Current (%) Chief Economist CFO CEO Fax: +968 246 913 44 Position Hydrocarbon

Equities Source of Capital: Portfolio Allocation Dr. Fabio Scacciavillani

Mr. Nigel Govett Mr. Hassan Al Nabhani P.O. Box 329, Muscat, 115, Oman Tel: +968 246 430 33 Oman Investment Fund (OIF) is an investment fund of the Sultanate and was established in 2006 in accordance with a royal decree. While its sole shareholder is the Government of Sultanate of Oman, it is governed by the Financial Affairs and Energy Resources Council (FAERC). STRATEGY The principal strategic objective of OIF is to serve as a source long-term risk-adjusted returns, and propagate the acceleration of economic growth within Oman. OIF has a diverse investment portfolio, investing in both traditional and alternative asset classes globally and domestically. The sovereign wealth fund invests principally in private equity, also maintains allocations to equities, fixed income, real estate, infrastructure, private debt and natural resources. OIF gains exposure to a broad range of industry sectors, including engineering, financial services, industrial goods, mining, media & entertainment, telecoms, travel leisure and utilities. Despite gaining exposure to a variety of alternative assets, the sovereign wealth fund does not yet invest in the hedge fund asset class. OMAN INVESTMENT FUND KEY CONTACTS Contact Fixed Income Private Equity Private Debt Real Estate Infrastructure Natural Resources Hedge Funds Other Investments SAMPLE PROFILE SAMPLE

18 © Preqin Ltd. 2018 / www.preqin.com DOWNLOAD DATA PACK: www.preqin.com/SWF18 - - (mn) Committed         50 GBP 75 GBP Size (mn) Focus Europe Europe Geographic Global North America Europe Asia MENA Other Emerging Markets Emerging Managers (All Stages) (All Stages) Fund Type Venture Capital Venture Capital -        2014 2016 Vintage Distressed Debt Mezzanine Special Situations Venture Debt Fund of Funds Co-Investor Separate Account REAL ESTATE OIF is highly active within real estate and maintains a portfolio comprised primarily of direct property holdings. The sovereign wealth fund focuses on the domestic market, but has also been known to acquire international assets. The investment strategy for the asset class is typically in line with Shariah principles. OIF has previously considered entering the private real estate fund arena, and has stated that it would only invest locally in GCC states. It is also known to listed REITs. In 2016, OIF was a cornerstone investor in the IPO of Manulife U.S. REIT on Singapore stock exchange. In line with its strategic aim to accelerate economic growth within Oman, OIF has increasingly targeted real estate investments in the domestic tourism sector. Through its subsidiary, Alila Salalah, OIF has developed Alila Jabal Akhdar, a luxury resort development in Oman. OIF plans to develop iconic residential and leisure destinations, including Yiti Yenkit on Muscat’s coastline, aiming to set up the Sultanate’s own version of Riviera. The project is proposed include hotels, affordable to luxurious residential properties and retail office areas. PRIVATE DEBT OIF actively invests in the private debt asset class as part of its allocation to equity. The sovereign wealth fund principally utilizes mezzanine vehicles, but considers other private debt strategies, including direct lending, on an opportunistic basis. Geographically, OIF targets private debt vehicles within MENA and Asia, has previously targeted Australia-focused funds. PRIVATE DEBT PREFERENCES Direct Lending SAMPLE FUND INVESTMENTS Fund Name Cambridge Innovation Capital I Cambridge Innovation Capital Fund II -               Global North America Europe Asia MENA Other Emerging Markets Global North America Europe Asia Other Emerging Markets Emerging Managers MENA -                In Q4 2016, OIF launched the $200mn Oman Technology Fund (OTF) to invest in start-up technology companies around the region and world. OIF partnered with Atlantic Bridge Capital, 500 Start-ups and Techstarts Ventures to create the fund. Its aim is attract technology companies to Oman and help transform the country into a tech hub while delivering sustainable returns. 2016 FIXED INCOME PREFERENCES Government Corporate Investment Grade High Yield PRIVATE EQUITY OIF maintains a considerable allocation to the private equity asset class and is invested both directly and indirectly through private equity funds. The sovereign wealth fund has a preference for buyout and venture capital vehicles, focused on the domestic market. It also gains exposure to global markets. OIF takes an opportunistic approach to the purchasing of funds on secondary market, but will not consider selling on the secondary market. It is open to investments in spin-offs and co-investment opportunities. Recent Key Event: Listed Unlisted Co-Investor Separate Account Buyout Venture Capital Growth Turnaround Secondaries Fund of Funds Other Private Equity PRIVATE EQUITY PREFERENCES Direct

19 PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS

AUGUST 2018

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