Sovereign Wealth Funds To Move Towards Direct Investment Route For The Future


Sovereign wealth funds are likely to change their investment strategy for Indian infrastructure projects and are expected to use the direct investment route more in the near future, compared to the current trend of investing through investment platforms, according to a recent report.

A JLL report said that in the past few years, sovereign wealth funds (SWF) have mostly invested through investment platforms or joint ventures with developers and funds, which is likely to change in the days ahead.

“The investment strategy of SWFs is expected to change. An increasing trend of SWFs investing through investment platforms/joint ventures with credible developers and funds was being observed in the past few years. A commitment of $2.0 billion through various platforms/joint ventures was made between 2014-19. Now, SWFs would be more inclined to use the direct investment route as compared to investment platforms,” said the report.

It further said that investments by sovereign wealth funds in India improved sharply post 2013 as various policy measures were introduced to attract foreign investments. In addition to the opening up of various sectors for foreign investments under the automatic route, tax concessions and legislation for real estate investment trusts and infrastructure investment trusts led to an increased inflow of foreign institutional investments.

As of December 2019, sovereign funds held $29 billion of assets under custody (AUC) in India. Real estate and warehousing sectors accounted for 22 per cent of the AUC, amounting to $6.6 billion. The reforms introduced in the real estate sector post-2014 have resulted in more than 80 per cent of the investments being made in the last five years, it said.

As per the report, the tax benefits announced for sovereign wealth funds in the Union Budget 2020-21, would help increase investments into affordable housing, logistics and warehousing.

Presenting the Union Budget, Finance Minister Nirmala Sitharaman said: “In order to incentivise the investment by the Sovereign Wealth Fund of foreign governments in the priority sectors, I propose to grant 100 per cent tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other 36 notified sectors before 31st March 2024 and with a minimum lockin period of 3 years.”