Our data suggests that sovereign wealth funds have been positioning their portfolios in a way that will help them weather the current crisis well.
As illustrated below, over the past three years, sovereign wealth funds appear to have been investing in sectors such as healthcare, infrastructure and technology, which have proved more resilient to the Covid-19 crisis.
Source: MSCI World Index
Over the past three years, sovereign wealth funds have focused on a few highly disruptive niches, such as biotechnology, in the broader healthcare technology sector.
They have largely avoided highly competitive sectors or those with significant regulatory risk, such as pharmaceuticals or medical equipment and supplies, which have, incidentally, been more affected by the Covid-19 crisis as healthcare centres have been converted into coronavirus wards, and many routine operations put on hold.
Biotechnology is attracting significant interest from sovereign wealth funds, partly because they have realised the commercial opportunities arising from developments in innovative FDA-approved gene editing technologies, which have recently been brought into sharp relief by the coronavirus pandemic.
Vir Biotechnology – backed by three sovereign wealth funds (Abu Dhabi Investment Authority, the Alaska Permanent Fund Corporation, and Singapore’s Temasek Holdings) – announced in January 2020 that it was working on a vaccine to help contain the outbreak and announced a partnership with Alnylam Pharmaceuticals to develop and commercialize RNA interference (RNAi) therapeutics targeting the virus that causes Covid-191.
As a result, the stock of this previously obscure NASDAQ-listed start-up initially surged from $16 to $75, as stock markets responded to fears of a global outbreak. Even amid the market rout of March 2020, the company’s share price remained robust.
"...the stock of this previously obscure NASDAQ-listed start-up initially surged from $16 to $75, as stock markets responded to fears of a global outbreak."
Equally, technology stocks have performed relatively well given that many of the world’s office workers are working from home. The stock price of companies such as Microsoft, Slack Technologies (which counts Temasek Holdings among its backers) and Zoom Technologies, which provide tools to enable people to work remotely, are faring well, especially in the market conditions of March and April 2020.
It is these providers of enterprise software and services in which sovereign wealth funds have become more interested. Such companies are often more reliant on their intellectual property for success and benefit from scale and network effects as they become established.
Consequently, they are potentially less vulnerable to competition and remain highly capital efficient, while requiring relatively large capital investment to support initial customer acquisition and global expansion. This makes them a good fit for long-term investors willing to put additional capital to work in successive rounds.
Singapore’s GIC participated in a consortium that took Ultimate Software private for $11 billion
In 2018 and 2019, these niches attracted 10% of all SWF direct investments, including some multi-billion-dollar leveraged buyouts, in which sovereign funds continued to participate in consortia, as we highlighted last year2.
For example, Singapore’s GIC participated in a consortium that took Ultimate Software — a provider of human resources management software — private for $11 billion in February 20193.
GIC also invested alongside the Abu Dhabi Investment Authority and other investors in the buyout of Press Ganey Associates, a company that provides digital platforms for process management in healthcare organisations, for an undisclosed sum in July4.
The Covid-19 crisis is likely to accelerate the adoption and habitual use of enterprise solutions technologies and increase the importance of cybersecurity products and services in the coming months and years. It looks, therefore, that sovereign wealth funds have already gained exposure to these companies and may be set to benefit from that prescience.
