'Sovereign wealth funds investing in a value-driven basis now'

aThings have changed quite significantly and they have got very professional staff and hired teams from investment banks. The whole decision making process has gotten very professional and investment driven, says Tihir Sarkar, Partner, Cleary Gottlieb.

What kind of conversations are you having with your clients who are mainly sovereign wealth funds in terms of the investing approach they are taking right now?
Sovereign wealth funds have become very sophisticated in terms of their thinking. There was a time not so long ago when sovereign wealth funds were buying trophy assets across the globe, really as a sign of intent and to create some soft power. It was almost viewed as connected to the political ambitions of the country. But since then, for many years now, some of these organisations have been investing on a value driven basis for quite some time now.

Things have changed quite significantly and they have got very professional staff and hired teams from investment banks. The whole decision making process has gotten very professional and investment driven. They are almost like semi broad equity firms and like the Apollos and Blackstones, they are looking at lead investments as well.

Usually they have three different arms: one is basically equities and hedge fund driven where they take pieces of the large funds which are professionally managed and invest money for them. Then there is the direct part where they get involved and deal directly without going through an intermediary or professional advisor. We are involved with that direct part.

We are observing that the role of sovereign wealth funds is undergoing a major transformation, they are becoming even more centre stage as far as playing the investing game is concerned globally. How is their approach evolving?
They are playing an increasing role in private equity. Large equity deals involve large equity cheques. The deal is often leveraged with finance but some cheques are quite big, running into billions. When it is of that size, elite sovereign wealth funds are often asked to help with equity cheque.

They are coming in early on the deals, on the bigger size transactions. They are leading the deal on the bigger private equity transactions that happened over the years like ThyssenKrup and Nestle Skin Health Care. They have got their own private equity teams themselves and they are willing to do direct deals. Temasek & GIC have been doing that for a long time in India itself and they do not need a private equity person. They basically look at source deals and put the money themselves and so things are evolving and they are becoming an increasingly big source of capital.

Not only do private equity look to them, even corporates look to them now. They are becoming an increasingly important source of capital and they are also being more aggressive.