In 2008, the large Middle Eastern and Asian sovereign wealth funds shied away from making foreign investments, due to uncertain economic conditions abroad and a beaten-down oil price putting on the damper at home. But now there are signs some of them are becoming more proactive.
Sovereign wealth funds are essentially pension funds run by countries, in particular commodity and consumption-led ones. They make up a sizeable amount of the total global investing base, managing some $3 trillion, according to recent reports. That's roughly two and a half times the size of the hedge fund industry.
As with most incidents in the financial markets these days, China is paving the way forward. In mid-August, China's $200 billion fund, China Investment Corp (CIC), announced it is preparing to invest up to $2 billion in U.S. mortgage securities under the Treasury-backed Public-Private Investment Plan (PPIP).
Today, CIC said it will increase new overseas investment this year by more than ten times last year's figure. With $4.8 billion in new overseas investments made in 2008, CIC will become in 2009 one of the most aggressive foreign investors there is. In particular, CIC said it is exploring Japanese real estate and equity markets for signs of value.
There are incremental signs other sovereign wealth funds are looking overseas, too. Sovereign funds in the Gulf region have been involved in global M&A deals worth $9.3 billion in the first half of 2009, according to mergermarket, a trade rag. In March, Abu Dhabi's sovereign wealth fund hired Rothschild's Alex CarrÃ© de Malberg to head up a team scouring for potentially profitable M&A deals to invest in, and other Arab funds have been putting their feelers out in the market for similar appointments too, according to headhunters.
Malaysian carrier Air Asia X's CEO Azran Osman-Rani recently said that he was in talks with Middle Eastern sovereign wealth funds about expanding his firm's equity base.
Just as U.S. institutional trading volumes begin to recede then, we may see a whole lot more foreign institutional investment come in and save the day.