Singapore's GIC Pte Ltd. has made a growing number of small-scale private equity investments this year, each amounting to between two and three basis points of the sovereign wealth fund's estimated portfolio size.
Some market veterans question the potential of those deals to materially boost to the fund's returns, but others say with 10 offices around the globe, a respected internal PE team and a long-term strategic approach, GIC is well placed to make those smaller investments count.
According to a tally by data provider Dealogic Ltd., six of the 14 private equity investments GIC made with a known acquisition value during the first seven months of 2014 were for US$100 million or less. In the four previous full years, the fund made no more than five such investments.
Among the 2014 investments were:
- The purchase, together with Macquarie Capital, of a majority stake in Iglu, an Australian student housing firm launched in 2010, with property valued at A$150 million (US$142 million);
- An investment of US$63 million in U.K.-based power technology company Intelligent Energy Holdings PLC;
- An US$80 million (PHP3.4 billion) investment in Manila-based Century Canning Corp.;
- A combined investment by GIC, Tiger Global Management, Temasek Holdings, Iconiq Capital and KaszeK Ventures of US$170 million in Brazilian e-commerce sporting goods company Netshoes; and
- A US$70 million investment in China's Huaxia Dairy Farm Ltd.
With the GIC portfolio's size a state secret, to guard against potential attacks on Singapore's dollar, it's all the more difficult to evaluate the potential for those investments to move the proverbial needle in meeting GIC's stated goal of benefiting “from investments that take time to realize their potential.”
But using the Sovereign Wealth Fund Institute's estimate of US$320 billion for the portfolio's value, those five investments would average between two and three basis points of the portfolio's value.
According to one Hong Kong-based investment consultant who declined to be named, many large sovereign wealth funds focus their efforts on bigger game. More typically, bulge-bracket asset owners “won't get out of bed for less than US$200 million or US$300 million,” he said.
In March, Lim Chow Kiat, GIC's group chief investment officer, said the current market environment of low bond yields and risk assets looking reasonably or fully valued would force investments teams to “work harder” this year to find value, with alternative asset segments such as private equity among the places where prospects still remain promising.
Spokesmen for some heavyweight funds say they have rules of thumb when it comes to minimum values for direct deals, but plenty of discretion when choosing whether to abide by them.
For direct private equity deals, “the minimum we look for” would be C$200 million (US$183 million), but that's a guideline rather than a hard-and-fast rule, said Linda Sims, a spokeswoman for the C$219.1 billion Canada Pension Plan Investment Board, Toronto.
CPPIB would consider smaller investments in developing markets “if it allows us to develop partnerships and relationships that have potential to grow in the future,” and smaller investments are also possible “if we are making additional investments alongside an existing partner,” she said.
Market veterans say such considerations might well pertain to GIC's investments. Often an investment is only an initial step in a broader strategic move, said Ray King, a Melbourne-based partner with Mercer's investment business and the firm's head of research on private equity managers.
In an interview, Jacqueline Chan, a Singapore-based partner with the law firm of Milbank, Tweed, Hadley & McCloy LLP, who advised GIC's private equity arm on its investment in May in Century Canning Corp., called that move an initial step in the broadest sense — as the first such investment made by any sovereign wealth fund in the Philippines.
GIC followed that up two weeks later with a US$233 million investment in Manila-based hospital group Metro Pacific Investment Corp., on which Ms. Chan likewise advised GIC.
While GIC's stated intention of leveraging its ability to make long-term investments might help explain, in part, its willingness to consider small ones, the scope and scale of its global reach — with 10 offices around the world — could lower its marginal cost of making direct investments.
“GIC just opened an office in Brazil, and as they spread their wings it gives them the opportunity, and more importantly the confidence ... to take bite-size investments in companies they normally would not have in the past,” said Song Seng Wun, a Singapore-based economist with CIMB Group, Kuala Lumpur.
Jennifer Lewis, a GIC spokeswoman, said GIC executives weren't available for comment.