* Total of 35 deals in Q3, down from 43 in Q2
* Biggest was $7.3 bln acquisition of Port of Melbourne
* Property and infrastructure account for third of total
By Claire Milhench
LONDON, Oct 3 An Australian port and a stake in
the Empire State Building's operator were among assets acquired
by sovereign investors such as wealth funds and state pension
funds in the third quarter of 2016, with deals totalling $21.2
The combined value of deals was up 38 percent from the
previous quarter, helped by a handful of jumbo-sized
transactions in the infrastructure, energy and real estate
segments, although the number of direct investments fell to 35
from 43 in the second quarter, according to data from Thomson
Although some oil-backed sovereign wealth funds (SWFs) have
been hit by a plunge in oil prices since June 2014, prompting
withdrawals from cash-strapped governments to cover funding
gaps, others, especially Asian SWFs, remain well-funded.
The single biggest deal in the third quarter was the $7.3
billion acquisition of Australia's busiest port, Melbourne, by a
consortium that included China Investment Corp, the Ontario
Municipal Employees Retirement System (OMERS), a Canadian
pension fund, and Future Fund, an Australian SWF.
The $814 billion China Investment Corp was particularly
active in the third quarter, participating in 11 deals,
including the three biggest.
While the fund posted its first loss on overseas investments
in four years last year, its total assets still climbed 9
percent in 2015, it said in July, and it has been ramping up its
investments in real estate and infrastructure against a backdrop
of low returns from publicly listed stocks and bonds.
"SWFs have a preference for well-established, existing
infrastructure projects, which have long-term visibility of
cashflows and operations, and provide stability of earnings,"
said Nikhil Salvi, a manager at Aranca, a research and analytics
Infrastructure plays are in such high demand that some SWFs
have struggled to meet target allocations, with 62 percent
falling short of their ideal weight in this segment, a study by
asset manager Invesco found earlier this year.
As a result, even infrastructure assets in emerging markets
facing big structural and economic problems are in demand.
A consortium including China's CIC Capital Corp and
Singapore's GIC Private Ltd paid $5.2 billion for a 90 percent
stake in Brazil's gas pipeline Nova Transportadora do Sul (NTS)
in the second largest deal of the third quarter.
NTS provides Brazil's most populous and industrialised
states - Minas Gerais, São Paulo and Rio de Janeiro - with
natural gas from Bolivia and Brazil's offshore fields.
Salvi said such emerging market infrastructure transactions
might represent better value than similar deals in developed
markets, where demand has driven up prices.
"If all the homework has been done properly, it should turn
out to be an attractive investment," he said.
Real estate also remained popular, with a $2 billion deal
for French residential property manager Foncia Groupe which
included CIC Capital again, and Canadian pension fund CDPQ.
Another high-profile property deal was Qatar Investment
Authority's acquisition of a stake in the Empire State Realty
Trust for $622 million.
The trust owns and operates New York's Empire State
building, suggesting some Middle Eastern SWFs have not yet lost
their appetite for so-called "trophy assets".
Norway's $888 billion SWF also bought stakes worth $453
million in two office properties in San Francisco as it
continued to build out its real estate portfolio to reach its
target allocation of up to 5 percent.
Norway's government withdrew 24 billion crowns ($3 bln) from
the fund in the second quarter.
Salvi suggested that rather than reining in overseas
acquisitions, pressure might be growing on oil funds to deliver
better returns through their investments.
"The situation back home in terms of falling oil prices may
increase the need to diversify income sources," he said.
($1 = 7.9913 Norwegian crowns)
(Reporting by Claire Milhench; Editing by Susan Fenton)