Singapore to be top investor in TPG fund

A Singapore sovereign wealth fund is expected to be the lead investor in a $6bn fund that TPG, the private equity firm, is raising to invest in troubled financial firms.

Government Investment Corp of Singapore would commit between $2bn and $3bn to the new financial opportunities fund, which is being marketed exclusively to a handful of the world’s largest sovereign wealth and pension funds, according to sources familiar with the matter. GIC did not return calls for comment.

The State Administration for Foreign Exchange, an arm of the Chinese government with responsibility for managing the country’s official $1,530bn in foreign exchange reserves, might also come in as a big investor in coming weeks.

Funds in the Middle East and some of TPG’s long-term core investors, such as Calpers and Calstrs, the big California public sector and teachers’ pension funds, might also invest.

The deal is the second in as many weeks to buck the recent trend of direct investment by sovereign wealth funds, reflecting their growing concern at the potential for domestic criticism.

China Investment Corporation’s expected investment of about $4bn in a similar fund being raised by JC Flowers, the US private equity group, was revealed in the FT last week. CIC originally considered investing in the TPG fund but was able to obtain more favourable terms from Flowers, according to people familiar with the matter.

A spate of big direct investments by sovereign wealth funds in Asia and the Middle East in ailing banks such as UBS, Merrill Lynch, Citigroup and Morgan Stanley has heightened fears of a political backlash.

Shying away from direct investment might not necessarily dilute a sovereign wealth fund’s influence in an investment, however. In the new TPG fund, sovereign wealth will have far more influence than in previous fund investments, where they were several among dozens of investors.

The dance between sovereign wealth funds and those who are seeking their capital – including Wall Street firms and private equity firms – has become increasingly complex as each side tries to exploit the competitive dynamic to extract optimal terms.

At the same time, sovereign funds are both competing with each other for access to the most attractive investment opportunities in the latest funds of private equity firms and with these same firms when it comes to shoring up the capital of ailing Wall Street firms.

For example, when Merrill Lynch was casting about for money, TPG showed up at the table but was spurned in favour of a bigger cheque from Temasek, another arm of the Singapore government. Meanwhile, Morgan Stanley spurned tentative offers from the Singaporeans, preferring to obtain money from CIC.

TPG and its founders, David Bonderman and James Coulter, have a long history of successful, contrarian investment. In contrast to peers such as Cerberus, TPG stayed away from making investments in the financial sector in the past few years.

But as the disarray in the capital markets has increased, TPG has been scouring the financial landscape for bargains. It is also about to finish the first stage of fundraising for its latest general fund, likely to be about the same size as its most recent $15bn fund. A spokesman for TPG declined to comment.