The decision by the Qatar Investment Authority (QIA) to invest EUR2.4 billion in RWE to support its accelerated ‘Growing Green’ strategy represents one of the 30 biggest ever investments by state-owned investors.
RWE plans to issue a mandatory convertible bond to a subsidiary of QIA, which will be converted into a shareholding just under 10% of RWE’s existing share capital. This will help fund the acquisition of Con Edison Clean Energy Businesses, which is set to position RWE as one of the leading renewable energy companies in the US. RWE has seen its profits boosted by sharp increases in electricity rates following the Russian invasion of Ukraine.
RWE’s development pipeline will expand to 24GW with solar represented 40% of the group’s US portfolio, up from just 3% now. The scale of the investment means it is among one of the top 30 acquisitions ever transacted by a state-owned investor. Indeed, it marks part of a trend that has seen sovereign funds and public pension funds.
The transaction ranks the 29th biggest signed by state-owned investors. However, the impact of the energy price spike has prompted a surge in acquisition activity as SOIs have sought to move private equity investment to safer targets. As a result, direct investment in chunky private equity and real assets is favored over venture capital, where risks are higher. Real assets and mature companies are currently the top priority.
Volatility and uncertainty are influencing investment patterns. Global SWF data shows that 16 of the top 30 private equity acquisitions by SOIs have been conducted in the past 12 months. The overwhelming preference is for infrastructure, which is regarded as a hedge against high risk. Ports utilities and logistics appear to be the favored sectors for investment.
QIA represents three of the top 30 acquisitions by sovereign funds, but Singapore’s GIC eclipses all others with 12 of the biggest investments. Its most recent is its partnership with Blue Owl Capital’s Oak Street to acquire the STORE Capital REIT, which invests in Single Tenant Operational Real Estate, in a US$14 billion cash transaction. The transaction followed a trend in GIC’s investment behaviour, which has sought greater weight to long-term protection of the portfolio from adverse risk by focusing on real assets and the security of developed markets – while also retaining diverse exposures across all market segments. Yet, GIC is still seeking risk exposures, albeit via an increasingly active venture capital strategy involving n increasing number of small investments in early to growth stage startups.