Temasek’s decision to open its third European office in Paris comes in the wake of Bloomberg declaring that the French stock market now has a combined value of US$2,823 billion – putting it ahead of the UK stock market at US$2,821 billion for the first time.

Brexit and the economic downturn are cited as reasons for Paris’ narrow lead over London, although more recent factors include the weakening value of the pound sterling and market volatility spurred by inflation.

Yet, London retains its position as the most favored city among state-owned investors, with a community of more than 1,000 SOI personnel working in 25 branch offices. Not only does London eclipse Paris, it is also preferred over New York City (22 offices), Hong Kong (nine offices) and San Francisco (nine offices).

Teams based in Paris tend to be small. The average headcount in SOI offices in London is around 38, while in Paris it is just 17. CDPQ – including its real estate subsidiary Ivanhoé - has the highest number of personnel in Paris with a team of 66, while in London four SOIs use the city as the location of their European hub of operations, each with over 100 personnel: CPP (156), GIC (140), OMERS (115) and NBIM (107).

The UK continues to lure SOI capital, supported by London offices. State-owned investors have contributed US$181 billion in foreign direct investment in the UK from 2012, compared to just US$54 billion in France. While there was notable weakening in SOI sentiment towards the UK in 2016 and 2017 amid the Brexit referendum controversies, from 2018 FDI has returned to levels typical of pre-Brexit. Even with the volatility around inflation and low growth, SOIs have seen opportunities in the UK, encouraged by the weaker pound. Five new offices have been established in London since the referendum, by BCI and AustralianSuper in 2016, PSP Investments in 2017, Mubadala in 2019 and PIF in 2022. As such, Brexit has not diminished appetite for SOIs.

There are various reasons for establishing branch offices, but public equity trading is not one of them. Many SOIs rely on external managers to take on public equity mandates, and/or they maintain large, long-term stockholdings. Most times, the purpose for creating teams is to originate deals in real assets and private equity – although apart from the Kuwait Investment Authority (KIA), Gulf-based funds have invested in UK remotely with Mubadala and PIF only recently opening small offices in the British capital.

The UK’s environment is more attractive in terms of acquisition of infrastructure and real estate as well as investing in venture capital. For example, while in France the electricity infrastructure is dominated by EDF, majority owned by the government, in the UK there are a range of operators throughout the generation, transmission and retail sectors in a market that is fully privatized.

This year, London-based infrastructure teams for Canadian public pension funds AIMCo, BCI, CPP, OMERS and OTPP along with Abu Dhabi sovereign wealth fund Mubadala invested US$7 billion in opportunities in renewables, telecommunications, electricity transmission and gas pipelines. In France, just US$585 million was spent in infrastructure by SOIs, notably CDPQ which has a Paris office and CPP from its London office.

Temasek’s motive is more likely to focus on France’s significant opportunities in venture capital and the Singaporean investor has paid close attention to French startups, particularly in e-commerce and fintech, in the past two years. Having a team in Paris will enable it to scale up its VC activities so they match the level of funding for British startups. Indeed, the rise of Euronext Paris’ market capitalization suggests improved opportunities for public listing of Temasek-backed startups.

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