Of course, sovereign wealth funds are nothing new - many were set up more than 20 years ago - but it is only now they have emerged as potentially crucial players on the international corporate stage, providing an obvious source of capital in an environment where the traditional financiers are so constricted.
Since the start of the year, investments banks including Citi, Merrill Lynch and UBS have sought this capital from state-backed entities with cash to spare. China Investment Corporation is thought to have $200bn (£103bn) of assets under management including a $3bn (£1.54bn) stake in buy-out giant Blackstone. Other major Chinese state-backed investors include Slaughter and May client Citic, which has an estimated £64bn of assets, while China Development Bank, estimated to have £150bn at its disposal, has links with Norton Rose. Perhaps the largest sovereign wealth fund, Abu Dhabi Investment Authority, with estimated assets under management of $875bn (£449bn), has links with Simmons & Simmons and Norton Rose.
But while many of the biggest funds have preferred to take relatively minor stakes in banks and other private equity groups, some smaller players have been the more active clients for law firms. Dubai International Capital (DIC) has been one of the busiest, acting much like an upper mid-market private equity house. DIC has a close relationship with Freshfields Bruckhaus Deringer and, more recently, Linklaters and Ashurst.
But while this provides a good example of how top London firms are well-poised to take advantage of this flow of deals from European and Asian investment funds, there is strong competition from US advisers. This was seen earlier this year when a group of sovereign wealth funds invested $19bn (£9.7bn) in Citi and all of the numerous parties were advised by US law firms. The most prominent of these, the Government of Singapore Investment Corporation (GIC), was advised by Sidley Austin, while Gibson Dunn & Crutcher acted for Kuwait Investment Authority. Other GIC advisers including Ashurst and Allen & Overy, will also be aware of O’Melveny & Myers’ links with the client.
In addition, Mergermarket data shows Temasek - which is known to use CC, Linklaters and Lovells - has established links with Hunton & Williams and Cleary Gottlieb Steen & Hamilton.
The US firms’ inroads are likely to be due to the fact that many of the targets, especially for Asian-based funds, have so far been US assets; yet even on the £12bn Qatari state-backed bid for Sainsbury’s last summer, Skadden Arps Slate Meagher & Flom got the nod.
The good news for City advisers is that, despite the Sainsbury’s bid, it is Middle Eastern funds that are more interested in European acquisitions and also in doing buy-out-style full takeovers, rather than taking minority stakes, which have limited fee potential for law firms. That has so far generally played to the UK firms’ advantage. However, if it continues to play, there will be no shortage of law firms ‘monitoring’ the situation.