And it’s probably true. After losing an estimated 18% to 25% this year, with much of it in U.S. investments, they’re not exactly rushing to write any more checks for us.
According to panelists at The Deal’s 2009 PE Outlook Conference, the SWFs have retreated, licking their wounds, from further investments in U.S. firms, companies and funds. They’re shifting their focuses back to domestic investing. And it’s not just a temporary bout on the sidelines. There’s a fundamental shift going on in the way they deploy their capital, the panelists said. Fortunately, that’s not necessarily a bad thing.
The panelists were Steven Baronoff of Merrill Lynch, Paul Beecy of Grant Thornton, Jeremy Payne of Capital IQ and Nick Rees of Linklaters. According to several of them, the SWFs have been burnt by bad returns on situations like Bear Stearns and other financial institution bailouts. One panelist said “there’s a sense of ‘Those tricky Americans have really gotten us! They told us that there was no money around, and now there’s $700 billion, and in the meantime, we’ve lost all of our investments!’”
There’s a silver lining, though. It’s true that for the time being, the SWFs will only invest in their own countries. Heck, even France’s SWF is designed to invest exclusively in French opportunities. However, the fundamental shift in the way SWFs want to deploy their money will ultimately benefit the U.S.
Previously, SWFs were passive financial investors. They’d invest in areas like real estate, or take passive minority stakes in financial services companies. According to a few of the panelists, that’s changed. Now the SWFs want to derive intangible strategic benefits from their investments, particularly in technology, the panelists said. The example given was Abu Dhabi’s investment in Advanced Micro Devices. Recently the companies created a new entity called Foundry Company, which will manufacture semiconductors. “There’s a shift toward more active operating stakes,” with active value creation, one panelist said.