Singapore's GIC is taking the unusual step of investing directly in unlisted firms, a move bankers say will be mimicked by other sovereign wealth funds as low yields spur fund managers to adopt a more hands-on attitude in their search for higher returns.
In the first half of this year, GIC agreed to pay up to $310 million for minority stakes in two unlisted Philippine companies: food producer Century Canning and hospital group Metro Pacific Investment.
While the investments in the Southeast Asian archipelago nation formed just a tiny sliver of GIC's estimated $30 billion private equity portfolio, they marked a departure from GIC's approach of putting money in a private equity fund that would then invest on its behalf, or co-investing with a buyout firm.
"These were sourced completely on their own - there were no investment banks involved in the deal," said Jacqueline Chan, a partner at law firm Milbank, Tweed, Hadley & McCloy, advisor of GIC on the two Philippine investments.
In May, GIC acquired a stake in Brazilian online sports goods retailer Netshoes after opening an office in the Latin American country. Two months later, GIC invested an undisclosed sum in India's biggest e-commerce firm Flipkart.
The deals represent a shift in strategy as the world's eighth-biggest state fund, chaired by Singapore's prime minister, transforms itself into an active private equity player. Bankers say the approach will likely be followed by other sovereign wealth funds, which are increasing their investments in alternative asset classes such as private equity as they struggle to eke out returns in more traditional stocks, bonds and real estate.
Last year, Norway said it was considering letting its sovereign wealth fund, the world's biggest sovereign investor, make foreign private equity investments. China Investment is also putting more money into private equity funds.
Private equity investments by sovereign funds like GIC would naturally intrude into the domain of buyout firms. Bankers say sovereign funds are still keen to co-invest with buyout firms where it suits them, but in those cases, they are becoming increasingly reluctant to be a passive "limited partner".
"They are no longer interested in just being the LP in fund No.4," said Patrick Thomson, the London-based head of sovereign clients at JPMorgan.
Last month, GIC was back at it again, ploughing $100 million into Taiwanese music streaming service KKBOX, billed as Asia's answer to Spotify.
Chris Lin, KKBOX's co-founder, said he first met with GIC's investment team over a year ago. The team won his attention with their ability to open doors for his firm.
GIC can help us "to connect with Southeast Asian carriers, business financial institutions, any possible business alliance - they can make a referral," Lin told Reuters on Tuesday.
He was also impressed by the team's depth of knowledge.
"The GIC executive responsible for our deal had more insight into the Internet industry than most investors I've encountered," Lin said. "We didn't really have to explain our model or strategy too much."
The approach is part of a broader, long-term strategy as GIC forms partnerships with small companies in anticipation of higher returns down the road, bankers say. Sovereign wealth funds have deep pockets, so they would be ready to weather any near-term volatility, they add.
"They encourage us to have long-term thinking," Lin said, reflecting on KKBOX's talks with GIC.