LONDON: Britain has long been a favoured playground for sovereign wealth funds from around the world to snap up glitzy skyscrapers, banking stakes and posh department stores.
However, uncertainty over Britain’s tortuous exit from the European Union has put many new investments on ice, say sources close to the funds.
Last year, there was a sharp drop in investments by wealth funds via private equity, with deals falling more than two-thirds from 2017 to $3.82 billion (£2.94 billion), according to PitchBook, a data and research firm.
“A lot of funds are simply not pursuing deals (due to Brexit), while they wait for certainty,” said Tihir Sarkar, London-based partner at Cleary Gottlieb, which counts several prominent sovereign funds as clients.
Brexit has now been postponed until October 31 so parliament can agree terms. While that prevents Britain from crashing out without a transition period in place, it also prolongs political and economic uncertainty.
At least Britain managed to draw a vote of confidence in February when Norway’s $1 trillion sovereign wealth fund, the world’s biggest, said it planned to keep increasing UK investments.
Most large sovereign funds contacted by Reuters did not respond or declined to provide comment, but several said their commitment to Britain remained unchanged while a couple acknowledged a pause in investments.
Abu Dhabi’s Mubadala Investment, which has its largest exposure to UK real estate and financial services and whose unit Masdar owns 20 per cent of the London Array offshore wind farm, has not made any changes to its investment strategy or portfolio in anticipation of Brexit, spokesman Brian Lott said.
“Our long-term strategy is opportunistic, so we will weigh the investment climate either way,” he said.
A spokesperson for the Hong Kong Monetary Authority, which has investment portfolio assets estimated at $509.4 billion, said it was watching the Brexit situation and “keeps under constant review the need to adjust the Exchange Fund’s investment strategies accordingly.”
But sources close to two other funds, who requested anonymity, said they were freezing investments until there was greater clarity on Brexit.
British authorities may be getting concerned: two sources close to the sovereign fund industry said several funds had been asked by British officials, including ministers, for assurances they would remain committed to existing investments.
There are some bright spots.
PitchBook data shows venture capital deal flow with sovereign fund participation in Britain rose 70 per cent last year to $1.28 billion. And the pound’s drop in value against the dollar since June 2016 appeared to have boosted allocations to external fund managers based in London, Sarkar said. “We’ve been really busy,” he added. “That’s not small amounts, so £500 million at a time, and those allocations have increased [since Brexit].” — Reuters
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