The value of global M&A investments backed by sovereign wealth funds coinvesting alongside private equity fell by more than half in 2023.
Sovereign wealth funds partnered with private equity or venture capital firms on nine M&A investments with an aggregate announced value of $18.94 billion in 2023, down 51.5% year over year from $39.03 billion across 11 investments in 2022, according to S&P Global Market Intelligence data.
Sovereign wealth funds' overall M&A activity — including both private equity coinvestments and deals that did not involve private equity — fell even further year over year. The aggregate value plunged 62.9% from the prior-year total to $29.04 billion in 2023. The decline coincided with a broader slump in M&A activity as higher interest rates pushed up the cost of financing deals and a stubborn valuation gap kept buyers and sellers apart.
The sharp drop-off in activity may reflect an "overly cautious" approach in 2023 by sovereign wealth funds who have "no shortage of capital" to invest, said Diego Lopez, founder and managing director of Global SWF LLC, a data platform that tracks state-owned investors, including central banks and public pension funds alongside sovereign wealth funds.
"I expect to see an increased level of activity in 2024, aligned with the recovery in markets," Lopez wrote in an email.
Momentum for coinvestments
Global SWF's 2024 annual report noted that coinvestments were "becoming more and more popular" among sovereign wealth funds and other state-owned investors.
Among the most active coinvestors are funds based in the Middle East and Singapore's GIC Pte. Ltd., where the levels of investable capital have risen recently. Lopez attributed the surge to "windfall" oil profits for the Middle Eastern funds and a recent transfer of $55 billion in excess foreign reserves to GIC from Singapore's central bank.
As fundraising from some of private equity's key limited partner constituencies, like pension funds, slowed in early 2023, sovereign wealth funds took the lead in coinvestment activity.
"Whether it's Asia or the Middle East, [sovereign wealth funds] seem to have a good amount of capital and are looking to put it to work across different asset classes and geographies," said KKR & Co. Inc. co-CEO Scott Nuttall on a midyear 2023 earnings call.
– Download the raw data file for this story.
– Read about the rise in private equity deals featuring earnout provisions in 2023.
– Catch up on the decline in pension fund-backed deal value in 2023.
In November 2023, leaders at Norges Bank Investment Management (NBIM), manager of Norway's $1.5 trillion Government Pension Fund Global, among the wealthiest sovereign wealth funds in the world, requested permission from the country's ministry of finance to open the fund to private equity investments, with a decision expected later in 2024. A report issued by NBIM in September described coinvestments as one strategy to lower the costs associated with investing in private equity.
"For investors, the main advantage of coinvestments is that they often require substantially lower or no management and carried interest payments. As a result, demand for coinvestments typically exceeds supply," the report noted.
Largest deals of 2023
In 2023, Abu Dhabi Investment Authority participated in three of the top six largest global M&A investments that feature both a sovereign wealth fund and a private equity or venture capital firm. Two of the three were the largest for the year: the $8.16 billion take-private acquisition of specialty chemical and ingredient distributor Univar Solutions Inc. with Apollo Global Management Inc. and the $4.78 billion buyout of hospitality and event-planning platform Cvent Holding Corp. — another take-private deal but in partnership with Blackstone Inc.
North America was the primary target for sovereign wealth fund-backed M&A investments in 2023 and has been for five of the last six years.
