GIC and Temasek Holdings are Most Acquisitive Among Global Sovereign Investors

GIC Pte and Temasek Holdings Pte, Singapore’s state-owned investment firms, are set to lead global sovereign investors in acquisitions for a second year after emerging as the most active in 2013.

The $15.7 billion spent by both companies accounted for about a third of direct investments by state investors globally last year, according to data compiled by the London-based Institutional Investor’s Sovereign Wealth Center. Temasek and one of its units announced two purchases in March that amounted to $8.9 billion, or 57 percent what the two companies invested last year, according to data compiled by Bloomberg.

The acquisitions may set the momentum for Temasek and GIC amid signs of a global recovery. U.S. data on exports and consumer confidence released this month added to a spate of data showing the world’s largest economy is gaining steam heading into the second quarter.

“I wouldn’t be surprised if GIC and Temasek beat last year’s level of investments,” said Song Seng Wun, a Singapore-based economist at CIMB Group Holdings Bhd. (CIMB) “The global recovery is becoming more entrenched. Investors should buy assets before they get more expensive, and GIC and Temasek are faster than other state funds in seizing the opportunities.”

Direct investments refer to strategic acquisitions rather than investments made as part of an index-linked portfolio, usually intermediated by an asset manager or bank, according to the Sovereign Wealth Center.

Biggest Share

Temasek in March agreed to buy a 25 percent stake in the retail arm of Hutchison Whampoa Ltd. (13) for HK$44 billion ($5.7 billion) and one of its units in the same month offered to take over Olam International Ltd. in a deal that values the commodity trader S$5.3 billion ($4.2 billion). GIC was part of a group that bought the Time Warner headquarters in New York for $1.3 billion in January.

The combined $15.7 billion spent last year by GIC and Temasek accounted for 32 percent of all transactions among their peers, according to the Sovereign Wealth Center. That’s the biggest share of all direct investments by state investors, the data showed.

It dwarfs the percentage of investments by state funds of Norway, Abu Dhabi and China, which each manage more assets than GIC and Temasek combined, according to the Sovereign Wealth Center’s website. Norway’s state fund, the world’s biggest, deployed $5.3 billion last year and China Investment Corp. $1.9 billion, according to the research.

‘Direct Investments’

Temasek is set up as a holding company, and mergers and acquisitions “is where its expertise lies,” said Enrico Soddu, an analyst at the Sovereign Wealth Center. “GIC has been increasing its direct investments only recently in line with the insourcing trend amongst sovereign funds to save on fees to asset management companies but also because their capabilities have grown,” he said.

Soddu added that the increase in transactions this year “is not surprising” because they will mainly stem from the two large deals by Temasek and also because 2013 was a “relatively quiet year.”

The total value of the 184 direct investments by sovereign wealth funds in 2013 reached $43.5 billion, 23 percent less from the previous year in value, mainly in line with a drop in cross-border mergers and acquisitions, according to the data.

In 2012, the Qatar Investment Authority was the biggest sovereign investor worldwide, with a share of 32 percent of global investments, equaling $16.4 billion, according to the data by the Sovereign Wealth Center.

GIC made 40 direct investments last year and Temasek 38, the data showed. Among GIC’s major transactions in 2013 were the purchase of a 50 percent stake in London’s Broadgate office complex and the acquisition of a 28.5 percent stake in Goldman Sachs Group Inc.’s European insurance business.

Temasek bought a 5.04 percent stake in Spanish oil company Repsol SA for 1 billion euros ($1.4 billion) last year. The firm’s liquefied natural gas unit Pavilion Energy Pte in November said it would pay $1.3 billion for a 20 percent stake in three gas blocks offshore Tanzania in East Africa.

This year’s purchase of the stake in A.S. Watson & Co., the retail arm of billionaire Li Ka-shing’s Hutchison Whampoa Ltd., was Temasek’s biggest so far, according to data compiled by Bloomberg, and gives the Singapore state-owned investment company a stake in a business with more than 10,000 stores worldwide.

Breedens Investments Pte, the wholly-owned unit of Temasek offering for the shares in Olam, on April 29 said 10.3 percent of the shareholders already accepted the offer. If Breedens bought all the shares not already owned at the time of the offer by a Temasek unit, it could pay as much as S$4 billion.

Key Themes

Temasek and its unit Seatown Holdings International, together with investment firm RRJ Capital Ltd., agreed to invest in NN Group, the insurance business of Dutch lender ING Groep NV (INGA), according to a April 30 statement by ING. Temasek and Seatown are contributing a combined 525 million euro, according to the statement.

“We invest over the long term in sectors which are good proxies to our key investment themes,” said Stephen Forshaw, a spokesman at Temasek. “The mix of our portfolio may change from time to time, not to fit any target that we have, but to cater to new opportunities that emerge.”

Temasek’s holdings jumped to a record S$215 billion in the year ended March 2013, as surging global stock markets bolstered assets.

‘Patient Capital’

The firm is the ninth-biggest state investor with an estimated $173 billion of assets, according to the Sovereign Wealth Center website. Its total investments were S$20 billion in the 12 months ended March 31, 2013, according to the Singapore investment firm’s latest annual report, published in July. That’s more than double the amount invested four years earlier.

GIC ranks fifth with an estimated $315 billion of assets, according to the Sovereign Wealth Center.

“We look at the long-term performance of the total portfolio rather than the performance of individual asset classes or investments,” GIC’s Group Chief Investment Officer Lim Chow Kiat said in an e-mail. “Our patient capital allows us to benefit from holding investments that take longer to realize their potential.”

Political Stability

GIC’s 20-year annualized real rate of return, or gains on top of global inflation that it uses as its main metric, was 4 percent in the 12 months through March 2013, up from 3.9 percent the previous year, the state fund said in its latest annual report in August.

Temasek’s total shareholder return, which includes dividends, widened to 8.9 percent in the year ended March 2013, from 1.5 percent in the previous year. It averaged 16 percent since its inception in 1974.

Singapore’s political stability and the size of the economy are helping GIC and Temasek to have better access to overseas markets, said Friedrich Wu, an adjunct associate professor at Nanyang Technological University in Singapore.

Trade-dependent Singapore is seen benefiting from an improving outlook for global expansion. The Asian Development Bank forecasts Southeast Asian growth to accelerate to 5.4 percent in 2015 from 5 percent this year, according to an April 1 report. The U.S., euro area and Japan will collectively grow 2.2 percent next year from 1.9 percent in 2014, the ADB said.

U.S. Growth

Consumer confidence was near the second-highest level in more than six years, the Bloomberg Consumer Comfort Index (COMFCOMF) showed last week. The biggest gain in U.S. exports in nine months helped narrow the trade deficit in March, pointing to a revival of global demand that will help the economy strengthen.

The island nation is ranked among the top five countries on Transparency International’s 2013 Corruption Perceptions Index. The U.S. placed 19th for corruption perceptions, while China was number 80.

Emerging markets including Brazil, Indonesia, South Africa and Turkey have “undervalued assets,” said Wu, adding that many of them are long-term and potentially profitable.

“Being a small and harmless country, Singapore’s sovereign wealth funds are perceived to be politically neutral by host governments, and hence have the advantage of not being under intense political scrutiny,” Wu said in an e-mail.

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