Back in the saddle

August 7, 2009

Remember the sovereign wealth funds? These were the state-run pools of funds that lost their shirts trying to bail out big Western financial companies last year. After dumping $80 billion into the sector, our data shows they are wearing shirts again, but are keeping clear of the industry that that made markets in toxic assets. Global corporate M&A activity involving the funds recovered to $3.61 billion in the second quarter. That’s a far cry from the end of last year – about a fifth of the total then – but a big jump from the last quarter.

In the first three months of this year, sovereign wealth funds’ merger volumes sank to just $1 billion from $19 billion in the final quarter of 2008, and had once been as high as $45.4 billion set in the first three months of 2006.

“Many funds have shifted focus away from aggressive investment abroad and instead put money into assets at home or into “strategic” foreign assets, such as food and energy, that fit in with national economic policy,” reports Natsuko Waki.

Knowing that investors with so much money can only sit on their burnt fingers for so long, it’s not surprising to see sovereign funds getting back to the business of trying to grow their assets. But don’t forget how lucrative those bank deals looked back then, with chunky premiums, credit-card level interest rates and what seemed like steal-of-a-deal mandatory calls. As investment markets recover, the trick will be to be able to tell when a deal is too good to be true.

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