Dwindling Pension Fund Availability Sees Overseas Investors Stepping Up
High oil prices are changing the fundraising mix for U.S. private equity firms, real estate, private credit and infrastructure.
Sovereign wealth funds, particularly those rolling in oil profits, are stepping into the breach opened by a 7.9% year-over-year drop in the value of pension funds, a major source of capital for both private equity and commercial real estate.
Whereas pensions for public workers have been hit hard by the economy, assets held by Middle Eastern sovereign-wealth funds have grown 20% to about $3.75T this year, according to The Wall Street Journal.
Private equity firm TPG is one firm reaching for funding from state-owned sovereign funds in the Middle East. U.S. investors raised 35% of TPG's capital for its ninth buyout and healthcare funds, down from 47% in a fundraising cycle from 2019, the WSJ reports.
“We’re definitely seeing a bit of a mix shift in the [limited partner] base, given that the current dynamics in the fundraising market are affecting some segments of the market more than others,” TPG Chief Financial Officer Jack Weingart said in an Aug. 9 conference call with analysts reported by the WSJ. “The composition of our LP base is much more international this cycle than it was last cycle.”
Similarly, StepStone Group raised 80% of its capital from outside the U.S. and North America over the past year, according to an earnings call.
Most large sovereign wealth funds are in the Middle East, the largest being Abu Dhabi's Mubadala Investment Co., which has nearly $100B in private equity assets.
Mubadala Investment Co. created a joint venture with Crow Holdings to develop $1B of U.S. industrial properties last year, as capital looks to "alternative CRE" to find opportunities, Real Capital Analytics Senior Vice President Jim Costello told Bisnow. Most overseas investors in U.S. CRE expected to invest more in industrial, according to a mid-2021 survey.
“The U.S. is the deepest, broadest market out there. But if you want to build a long-term sustainable and scalable investor base, you have to look for geographic diversification,” Ophir Shmuel, a managing director for advisory firm Eaton Partners who heads operations in Europe, the Middle East and Africa, told the WSJ.
