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Sovereign wealth funds bullish on investing in India

After overseas pension pools and foreign portfolio funds, it’s now sovereign wealth funds that find India an irresistible investment destination. Governmentpromoted investment funds of various countries have invested close to Rs 14,850 crore during the eight-year period beginning 2000, according to a report released by the United States Government Accountability Office.

Sovereign wealth funds are typically state-owned investment funds that have a global invesment horizon and are sometimes owned by central banks of countries.

Though SWF investments into India during the considered period is fractionally lower compared to peers such as Thailand and Indonesia, investment consultants in India say that SWFs have started looking at Indian assets more seriously over the past few years.

From a couple of SWF investments until 2004, to more than nine funds with direct investments in Indian asset classes at March-end 2009, the trend is growing.

Kuwait Investment Authority’s investments in Chryscapital and ICICI Venture Funds, Malaysia’s Khazanah Nasional’s 9.9% shareholding in IDFC, Government of Singapore’s 6.3% holding in Anant Raj Industries, the Palestinian Investment Funds’ 50% stake in The India-Oman Special Investment Fund and Temasek’s 8.3% and 5% equity shareholding in ICICI Bank and Bharti Airtel respectively, are some of the top SWF investments in Indian asset classes, according to a survey conducted by Londonbased research firm Preqin.

India-based experts say that shallow equities markets-low public floats in listed companies and limited asset classes-caps on foreign institutional holdings and cautious investment approaches by sovereign wealth managers are reasons for SWFs going slow in India. “SWFs are large-based funds,” said a Mumbai-based foreign investment consultant.

“They still find India not big enough to set up a research base. They prefer to have exposure in India through investment banks and private equity companies rather than a direct exposure ,” he added. According to the equities head of a US-based investment bank, the Indian government too hasn’t been keen to allow SWFs to invest in Indian assets.

“Though most of them are allowed to invest as FIIs, there is investment cap on almost all investible sectors. The government is keeping caps just to ensure that SWFs pump in money just to make investments and not have any other motives,” the equities head added. Chinese SWFs have recently made inroads by buying resources and under priced assets across the globe, sparking speculation that companies and some small countries could be overselling their assets and also probably cede control over these assets subsequently.

As per numbers collated by United States Government Accountability Office, net SWF investments into India for eight years through 2008 stood at $3.3 billon. This is lower than Indonesia pocketing $4.2 billion (Rs 18,900 crore), Thailand bagging $4.3 billion (Rs 19,350 crore) and China recording a whopping $12 billion (Rs 54,000 crore). Global crossborder SWF investment increased from $429 million in 2000 to $53 billion in 2007.

“It is certainly not the case that there is something inherent in the Indian market that makes it unsuitable for SWF investments ,” said London-based Baer Capital Partners’ founder president Alok Sama. “SWFs are looking for the right assets to make significant commitments to India.

“Recent losses suffered by SWFs in their commitments to global PE funds, hedge funds have led them to be even more conservative ,” Mr Sama added. SWF investments will increase once the Indian market matures.

“It would be fair to say that large global institutional investors are interested in India but its a fringe market yet, said another market participant. Mr Sama said that for such sovereign funds, the value proposition in the Western world is much more compelling… so there is a natural tendency to gravitate toward what they know best,” Mr Sama added.

Source: Economic Times

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