Cash-rich sovereign wealth funds (SWFs) are seeking a larger role in private equity deals and want to cultivate special relationships with buyout houses as they become influential cornerstone investors in their funds. Singapore's GIC unveiled its investment in German publisher Springer alongside Swedish buyout firm EQT on Friday, a sign sovereign funds are ready to help buyout firms pursue larger deals as M&A markets begin to thaw. In the same way China's CIC took a stake in Europe's Apax Partners as well as investing in its fund, however, these investors want special terms and first right to participate alongside buyout houses in deals, as a means of enhancing returns. “Some sovereign wealth funds are ready to put large amounts of money to work, but they want to be considered a special investor,” said Antoine Drean, chairman of placement agent Triago. Private equity firms, eyeing new deals as debt markets loosen, are concerned their traditional investor base of pension funds and endowments will start rowing back on commitments to fundraisings once current capital is exhausted. “Who are the only people with deep enough pockets to take up the slack? It's the sovereign wealth funds,” said a private equity manager, who declined to be named. So they are courting the sovereign wealth funds and sovereign wealth funds are in a position to call the shots. US buyout houses like Blackstone and Carlyle Group have long courted sovereign wealth funds, particularly in the Middle East, but recent deals demonstrate how these investors are keen to spread their wealth elsewhere. Dominique Senequier, chief executive of Axa Private Equity, Europe's third-largest private equity investor, thinks they will direct more money to firms in Europe and Asia. Having sat on the sidelines as the credit crisis battered buyout firms, now the balance of power has shifted from big buyout houses to their increasingly vociferous and powerful investors, sovereign wealth funds are ready to invest again. “They feel their time has come and that they can take advantage of the situation, much more than in 2006 and 2007, when the private equity firms were definitely in power,” said Traigo's Drean. Drean, who has been raising money for private equity firms in the Middle East since 1994, sees there being several hundred billion dollars of cash around the globe ready to go into the asset class. Overall, the world's sovereign wealth funds have more than $3.8 trillion of total assets under management, according to October estimates from the Sovereign Wealth Fund Institute. Drean said Saudi Arabia would be one of the largest contributors to private equity in coming fundraising cycles. And despite the tremors in Dubai, the Gulf's financial hub, private equity firms also see deep-pocketed contributors, such as Abu Dhabi's second tier funds AD Invest and Abu Dhabi Investment Council, as well as Emirates Investment Authority.
