British Prime Minister Boris Johnson is set to secure a multi-billion dollar deal with Saudi Arabia’s Public Investment Fund (PIF) as he courts the Middle Eastern kingdom for post-Brexit investment deals and cement strategic alliances.
The UK government is keen to replicate the GBP10 billion sovereign investment partnership (SIP) signed with Abu Dhabi’s Mubadala last year. Talks with Riyadh have been spearheaded by investment minister Lord Grimstone, who will accompany the Prime Minister on his trip to the region.
PIF has recently snapped up the Newcastle United Football Club and its strategy is heavily focused on consumer-oriented sectors, from gaming to e-commerce, and energy transition. Mubadala’s SIP has focused on tech, life science and renewables. technology, energy transition and life sciences. As such, there is potential for co-investments involving the UK government, PIF and Mubadala.
State-owned investors have invested approximately US$44 billion in UK infrastructure from 2012 to date, with oil and gas pipeline infrastructure and airports representing the popular sectors. In 2021, residential and logistics real estate and transportation infrastructure captured the bulk of investment volume, although state-owned investors were also ploughing capital into British tech startups.
Mubadala announced in September that it was scaling up its plans under the UAE-UK Sovereign Investment Partnership (UAE-UK SIP) with the GBP5 billion (US$7 billion) investment framework agreed last March boosted to GBP10 billion (US$14 billion) over 2021-2026. Global SWF’s investment tracker for Mubadala shows that infrastructure including renewable energy represents 47% of the value of its investment in the UK. Its biggest single investment to date is in the London Array, a 1,000MW wind farm in which it acquired a 20% stake via its green energy subsidiary Masdar in 2008. The investment was valued at around US$650 million – around half the total the SWF has invested in the UK to date.
Mubadala’s renewables subsidiary Masdar also has a 25% stake in the GBP210 million Hywind Scotland, world’s first offshore floating wind farm with 30MW capacity. Healthcare, including biotechnology and life science industries, represents the second biggest target with 15% of total investment. In March, Mubadala agreed to commit GBP800 million (US$1.1 billion) in the sector in 2021-26.
Mubadala’s renewables subsidiary Masdar along with the Abu Dhabi National Oil Company (ADNOC) and BP are looking to climate-focused investments, particularly “low-carbon hydrogen hubs”. In a joint statement last year, they said: “The hydrogen agreements also align with the UK’s recently announced commitment to achieve 5GW of low-carbon hydrogen by 2030 and the UAE’s Nationally Determined Contribution of reducing greenhouse gas [GHG] emissions by 23.5% compared to business as usual for the year 2030.”
The Qatar Investment Authority (QIA) is also eyeing UK opportunities. In November, it was touted as one of the potential buyers for US$7 billion worth of British electricity and natural gas transmission networks offered by the National Grid. The move by the Qatari sovereign wealth fund came amid an energy crisis that is fuelling UK gas and electricity prices caused by disruption to global supply chains, cuts in Russian LNG exports, and resumption of activity in the world economy. QIA and its Chinese counterpart the China Investment Corporation (CIC) were part of a consortium that acquired a 61% stake in the National Grid’s spun-off gas pipeline network, now known as Cadent, in December 2016 for a whopping GBP13.8 billion (US$17.5 billion).
Middle Eastern sovereign wealth funds are joined by Australian and Canadian public pension funds in institutional investment in the UK economy. In February, AustralianSuper, Australia’s largest pension scheme, announced it was planning U$D31 billion of investments in the UK and Europe over the next five years as it looks to double the value of its UK assets. It plans to ramp up its UK asset value from US$9.5 billion to more than US$20 billion by 2026 with investment in real estate, infrastructure and private credit, according to the Financial Times. It currently possesses stakes in Heathrow Airport and development projects at London’s King’s Cross area, but the fund is looking for “a variety of opportunities for high-quality sustainable mixed-use real estate investments that are or can be carbon neutral.” At the beginning of November, AustralianSuper and the Dutch public pension fund APG teamed up with infrastructure giant Global Infrastructure partners to acquire German asset manager DWS’ 37.4% stake in the UK-based port operator Peel Ports Group.
In terms of the nationality of state-owned investors, Canadian public pension funds represent 37% of total SOI investment in UK infrastructure, followed by the Middle East (26%), China (16%), Asia (excluding China) (9%), Europe (8%), and Australia (4%). Canada’s Caisse de Dépôt et Placement du Québec (CDPQ) has promised C$15 billion (US$12 billion) of investment in UK and EU private markets, adding that the UK stood out because of its “pro business” stance. The Québecois fund already has C$22 billion of investments in the UK. In October, it indicated that it was boosting the size of its London team from 40 to up to 70 over the following 18 months.
Global SWF believes that the UK will remain an attractive destination for state-owned investors. Sovereign wealth funds have deployed in excess of US$131 billion into the UK economy over the past 50 years and if public pension funds are included, the total investment by state-owned investors is well over US$215 billion. London remains popular among state-owned investors, said Mr López, with 23 offices, more than anywhere else in the world.
At a meeting of the House of Commons Select Committee on International Trade, Global SWF CEO Diego López said around 90% of sovereign wealth investments come from just nine funds: four from the Middle East - QIA (the leading investor with US$35 billion of UK assets), KIA, ADIA, Mubadala - plus four from Far East - Singapore’s GIC and Temasek and China’s CIC and SAFE – along with Norway’s NBIM.
Following the 2016 Brexit referendum, the average deal size by sovereign wealth funds investing in the UK fell from more than US$1 billion to around US$200 million. While investment in hotels and offices has fallen, this does not represent diminished interest in other areas of the British economy where state-owned investors see opportunities.
He told British parliamentarians that “sovereign wealth funds have traditionally preferred properties, but focus has shifted markedly from 2016 and due to Brexit and Covid19 funds are deploying more capital into data centers and logistics and this facilitates investment outside London.”
Mr López added: “Infrastructure is a different animal altogether. Funds tend to form co-investment clubs, bidding for assets together. There is a significant footprint outside London, such as Scotia Gas Networks and Birmingham Airport which backing from both sovereign wealth funds and public pension funds.”