May 15, 2014

    GIC, Temasek set to blaze acquisitions trail again

    GIC and Temasek Holdings are set to lead global sovereign investors in acquisitions for a second year after emerging as the most active last year.

    The US$15.7 billion (S$19.6 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 US$8.9 billion, or 57 per cent 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.

    "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.

    "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."

    Temasek in March agreed to buy a 25 per cent stake in the retail arm of Hutchison Whampoa Ltd. for HK$44 billion (S$7 billion) and one of its units in the same month offered to take over Olam International in a deal that values the commodity trader S$5.3 billion.

    GIC was part of a group that bought the Time Warner headquarters in New York for US$1.3 billion in January.

    The combined US$15.7 billion spent last year by GIC and Temasek accounted for 32 per cent 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 US$5.3 billion last year and China Investment Corp US$1.9 billion, according to the research.

    For Temasek, 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 among sovereign funds to save on fees to asset-management companies but also because their capabilities have grown," he said.

    Mr Soddu said 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 last year was a "relatively quiet year".

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

    GIC made 40 direct investments last year and Temasek 38.

    "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 realise their potential."

    GIC's 20-year annualised real rate of return was 4 per cent in the 12 months through March last year, up from 3.9 per cent the previous year, it said in its latest annual report in August last year.

    Temasek's total shareholder return, which includes dividends, widened to 8.9 per cent in the year ended March last year, from 1.5 per cent in the previous year. It has averaged 16 per cent 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.

    "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," Dr Wu said.