Several large state institutions have begun combining an ongoing interest in mega deals in the real asset space with an increasing willingness to consider far smaller transactions, new research shows.

The average size of investments made by sovereign wealth and public pension funds has steadily fallen to $323 million last year from $1.37 billion in 2008, according to data compiled by Global SWF (see graph below). The sharply increased appetite for venture capital investments in technology, particularly since 2017, is a factor, but not the only one. 

“When we spoke to state institutions 10 years ago, they were only looking for the ‘elephants’, the $1 billion-plus deals,” Diego Lopez, managing director at the New York-based consultancy, told AsianInvestor.

Today, the conversations are very different, and the average ticket size for sovereign allocators has dropped for several reasons, according to the report published on Monday (February 1) in Global SWF’s February newsletter.

(Source: Global SWF; Click for full view)

First and foremost, fiercer competition for private investments has led to a dearth of available deals.

“The biggest concern of investment teams continues to be the lack of access to off-the-market opportunities, and the pressure to deploy capital every year,” said the research. “Multi-billion[-dollar] sales now go through formal bidding processes involving many consortia, and they have no option but to become creative for deal origination.”

Lopez cited Singaporean sovereign wealth fund GIC as an example of an institution having broadened its dealmaking in order to handle the sheer weight of money it needs to invest. Even in a Covid-hit 2020 the Singapore sovereign wealth fund deployed $18 billion, while it had utilised $24 billion the year before.


Another trend contributing to falling deal sizes has been the tilt from real assets to private equity, Global SWF said in its paper.

“As state-owned institutions mature, they are able to sell assets when the price is right, and shift to other industries as opportunities arise.”

These investors have reduced their exposure to property, which normally means larger tickets, and increased their exposure to healthcare and technology, which usually involve smaller investments, as Global SWF noted in its annual report last month.

“Sovereign wealth funds didn’t really sell real assets a decade ago; they were just buying. That has changed,” Lopez said. “They are now more sophisticated, they know to sell when the market is hot.”

A third factor cited by Global SWF as affecting deal size is state-owned institutions' inclination to conduct more direct investments in private equity and use fewer asset managers.

“Inevitably, that means that their average investment is much smaller,” said the report. A single $1 billion commitment to a PE fund now translates into 10 different acquisitions and co-investments of $100 million each.

      (Source: Global SWF;
       Click for full view)

The shift towards smaller deals is very noticeable among those funds that have set up venture capital subsidiaries or teams, which would invest as early as series A with $5 million to $10 million commitments, said Global SWF. These include GIC, Temasek, Ontario Municipal Employees' Retirement System, Ontario Teachers' Pension Plan and Abu Dhabi's Mubadala (see table, left).

For others, such as Qatar Investment Authority and China Investment Corporation, it has been a more natural evolution, the report said.

The Qataris have moved away from the multi-billion-dollar deals they were making in 2008, such as investments into London's Shard and Barclays, towards smaller, pre-IPO deals in 2020.

Meanwhile the Chinese fund exchanged flagship stakes in US financial services institutions Morgan Stanley and Blackstone for co-investments in Italy and Australia, partly due to the restrictions on investment in the US.

While there is only so low the average size of SOI investments can go, public funds' appetite for smaller deals looks well established.