2016 was not like any other year for sovereign wealth funds, according to the 2016 Sovereign Wealth Fund Report, presented at a closed-door event on Friday morning by the Sovereign Investment Lab (SIL, part of the Carefin Mustache Center of Bocconi). Sovereign wealth funds have reacted to falling oil and commodity prices and growing political uncertainty by reducing investments to the level of a decade ago and abruptly switching from safe assets to risky investments, especially in technologies, thus following in the footsteps of venture capitalists and inducing SIL scholars to titrate their report Hunting Unicorns (chasing unicorns).
In 2016, the 21 funds monitored by SIL concluded 158 deals (-14%) for a total declared value of $39,9 billion (-16%), reaching the lowest level since 2006. The industry seems, however, have already recovered. “As political uncertainty eases and global growth accelerates,” says SIL director Bernardo Bortolotti, “2017 promises to be an interesting year”.
Operations and investments from 2000 to today
However, there was no shortage of interesting aspects in 2016 either, with funds replacing the funds investments in safe assets (real estate, hotels and tourist facilities, infrastructure and utilities) with investments in information technology. With 31 deals and a value of $13,4 billion, the investments in high-tech represented 19% of the number of offers and 33% of the value invested. SWFs invested more in the sector in 2016 than they had in the previous 10 years combined. “The bets made by sovereign wealth funds in this sector are surprising,” says Bortolotti, “and the latest announcements suggest that the game has only just begun. Whether or not they are successful will largely depend on their execution skills in identifying the best opportunities and sourcing the best talent. In their quest for unicorns, SWFs will compete with sophisticated and nimble investors, such as venture capitalists, who have dominated this space thus far."
Investments in technologies
2016 confirmed the trend towards a reduction in investments in the financial sector, initiated by the financial crisis. With 2,1 billion dollars, which represents 5% of the total value, investments in the sector have bottomed out.
After a couple of years of declining investment, the US experienced a major recovery in 2016 and once again emerged as a safe haven in the global chaos. With $14,9 billion of SWF investments, they were by far the most attractive market in 2016. Europe had one of the worst years of the last decade, attracting just $7,2 billion.
Breakdown by target geographic area
Today's presentation was also attended by the 17 participants in the Sovereign Investment Academy of SDA Bocconi, sourced from sovereign wealth funds on three continents, including representatives from Iran, Saudi Arabia and Palestine. Designed in collaboration with the International Forum of Sovereign Wealth Funds, the Academy "provides focused, specialized and innovative training not currently available in traditional management programs," says Bortolotti, who is also Director of the Academy.
