Sovereign and Public Investor Topics: Asset Allocation and Policy
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real assets

Temasek SWE and RRJ Capital Invest $250 Million in Chinese Warehouse Business

A Singapore sovereign wealth fund is betting on a Chinese logistics facilities company following a platform investment from a major U.S. private equity investor. Overseas institutional money views modern logistics in China as a viable investment theme due to growth in mainland China e-commerce and middle class income. Temasek Holdings, through SeaTown Holdings International, and RRJ Capital Ltd., managed by Charles Ong and Richard Ong, are investing US$ 250 million in Shanghai Yupei Group Co. Founded in 2000, Shanghai-based Yupei is one of the biggest privately owned logistics warehouse developers in China.

The deal follows a US$ 200 million investment from The Townsend Group and The Carlyle Group back in August. Townsend and Carlyle, through its vehicle Carlyle Asia Real Estate, committed capital to purchase equity interests in 5 warehouses owned by Yupei and 12 new warehouses in development. The planned warehouses are being built in cities such as Shanghai, Beijing, Guangzhou, Shenyang, Tianjin and Hefei.

“China is an attractive logistics market, with strong fundamental demand and a limited supply of modern logistics facilities. As a leading player in the industry, we believe Yupei is well-positioned to capitalize on this rapidly growing market,” said Jimmy Phoon, CEO of SeaTown Holdings International in a press release.

SeaTown Holdings International was created in 2009 by Temasek Holdings. Charles Ong was the former CEO of SeaTown Holdings.

A Big Deal: GIC Pays $1.3 Billion for Meguro Gajoen

Singapore sovereign wealth fund, GIC Private Limited, beat out other institutional investors to acquire Meguro Gajoen from Dallas-based Lone Star Funds for around 134 billion JPY (US$ 1.3 billion). Meguro Gajoen is based in central Tokyo and is comprised of an office tower, hotel and banquet hall. The key tenant is Amazon Japan, the Japanese unit of Inc.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Florida SBA Buys 1370 Broadway for $186 Million

The Florida State Board of Administration (SBA) acquired the 16-story building at 1370 Broadway for US$ 186 million in cash from Morristown-based Normandy Real Estate Partners. The building is located in the middle of Times Square South. It is in close proximity to Bryant Park. Normandy Real Estate renovated the property and hired CBRE to market it for sale.

Normandy Real Estate Partners bought 1370 Broadway in 2012 for US$ 125 million from Sitt Asset Management and Carlton Associates. Carlton Associates is the investment office of the Cohen family, founders of Duane Reade. At the time, the building was marketed by Eastdil Securities.

In 2003, 1370 Broadway was purchased by Sitt Asset and Carlton Associates acquiring it from SL Green Realty for US$ 57.8 million.

SOFAZ Makes First Asian Real Estate Purchase

The State Oil Fund of Azerbaijan (SOFAZ) has purchased Pine Avenue Tower A in Seoul, South Korea for US$ 447 million. The prime office complex was sold utilizing a competitive auction process managed by Mirae Asset Management on behalf of the four owners which include, NongHyup Bank, NongHyup Life insurance, Woori Bank and KDB Life Insurance. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Qatari Diar Chooses DC for US Office

Qatari Diar Real Estate Investment Company, a subsidiary of the Qatar Investment Authority, is opening up a regional office in Washington D.C. The office will enable Qatari Diar to pursue opportunities in the Americas.

The office will be located in City Center D.C. Stephen Pettit will head the office in the Americas.

Panama Developments

Qatari Diar is partnering in a joint venture on developing Panama Pacifico, a massive mixed-use real estate development. The developer is London & Regional Panama, International. The project is on the former site of Howard Air Force Base, on the western bank of the Panama Canal.

Alaska Permanent Fund Commits £250 Million to UK Real Estate

The Alaska Permanent Fund Corporation (APFC) committed £250 million to LaSalle Investment Management for commercial European real estate. Late to the U.K. property party, this is the first time the APFC has allocated capital directly to European commercial real estate. The capital committed will be managed in a custom U.K. real estate separate account. The money will target properties between £50 million and £150 million, and will consider all sectors, including mixed use.

The Alaskan sovereign wealth fund has an existing institutional relationship with LaSalle. The APFC has nearly US$ 900 million invested with LaSalle in U.S. institutional real estate.

In a LaSalle press release, Michael Burns, executive director at the Alaska Permanent Fund Corporation, said: “While the entry into Europe is clearly expected to provide diversification benefits, the increased capital dedicated to real estate (both domestically and globally) compels us to expand our footprint and opportunity set. We are excited to team up with LaSalle in the UK and are encouraged at the pipeline of opportunities.”

3 Things to Watch in NSIA Allocation to Infrastructure

The Nigerian Sovereign Investment Authority (NSIA) has made historic moves into domestic infrastructure. The infrastructure fund constitutes 40% of the allocation of the NSIA.

On February 26, 2013, the NSIA’s sovereign wealth enterprise, NSIA Motorways Investment Company (NMIC) signed a deal with Julius Berger Investments Ltd. for the NMIC to act as an investment partner to the Second Niger Bridge Project. This infrastructure project is a public-private partnership (PPP) with the Federal Government of Nigeria.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Japan’s GPIF Partners with OMERS and DBJ on Infrastructure

infrastructureJapan’s Government Pension Investment Fund (GPIF) is moving forward with its infrastructure investment program by partnering with the Development Bank of Japan (DBJ) and the Ontario Municipal Employees’ Retirement System (OMERS). OMERS is a major public institutional investor involved in infrastructure investing globally.

Approaching US$ 1.3 trillion in assets, the world’s biggest pool of retirement assets is trimming Japanese government bonds (JGBs) and using that allocation for infrastructure. Norway’s Government Pension Fund Global made similar modifications in its asset allocation by chopping fixed income and using that portion for institutional real estate piece.

At a formal briefing today, as much as US$ 2.7 billion could be deployed into infrastructure by the GPIF in the next few years. Taking into consideration the massive size of the GPIF, that would be around 0.2% of current assets under management.

The GPIF has taken a cautious approach to investing and conducted a series of studies on alternative assets and infrastructure. The GPIF was attracted to the concept of capturing a liquidity premium and broader asset diversification.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

REVEALED: Sovereign Wealth Funds and Pensions Boost Real Assets in February

cityviewIn recent times, sovereign wealth funds and public pensions have boosted exposure to real assets. According to research by the Sovereign Wealth Fund Institute, more large public investors will augment allocation to real assets while lowering allocations to domestic equity and fixed income. For example, near the end of 2013, Australia’s Future Fund has planned to expand real asset allocation from just over 10% to barely under 20%. Embracing infrastructure, the sovereign fund’s chief investment officer, David Neal, was involved on them acquiring a stake in Perth airport. In August 2013, Neal received flack from the local press about the idea of the Future Fund paying too much for the airport.

Common reasons on why institutional investors are betting on real assets include: anemic interest rates, the potential for long-term income streams, possibility of rising inflation and lackluster bond yields.

Sovereign Wealth Fund and Public Pension Real Asset Updates – February Trends

Colossal public investors like CalSTRS had its board increase authority for investment officers to dole out money directly to infrastructure investments – a clear sign on real asset allocation demand. Heading North, the CPPIB moved mounds of capital targeting Indian real estate in core markets by partnering with local companies. On February 26, 2014, LS Power Equity Advisors, LLC, a U.S. power and energy infrastructure manager raised $2.075 billion for LS Power Equity Partners III, L.P. The energy manager received capital commitments from Asian sovereign funds as well as Gulf-based funds. The Alaska Permanent Fund Corporation committed US$ 200 million to the new fund – its first investment with LS Power. LS Power Equity Advisors, LLC buys operating power generation assets.

Flying over to Malaysia, 1Malaysia Development Bhd. (1MDB) is seeking to construct the country’s largest solar power plant. In fact, 1 MDB is contending to develop the solar project that is being proposed by Malaysia’s Energy Commission and Sustainable Energy Development Authority. This project would enhance the country’s photovoltaic capacity by 56%.

GMR Restructures Temasek, IDFC Agreement in $183 Million Share Issue

GMR Group, the Bangalore-based infrastructure developer, announced plans last Friday to restructure investments in GMR Energy Limited made by Singapore public investor Temasek Holdings Pvt Ltd and a consortium led by Indian private equity firm IDFC Alternatives Ltd. Subject to satisfaction of conditions precedent, GMR Infrastructure Ltd will issue US$ 183 million worth of compulsorily convertible preference shares (CCPS) to Temasek and the consortium through a preferential allotment.

GMR Infrastructure will issue shares worth 7.89 billion rupees and 3.48 billion rupees to Temasek and the IDFC consortium, respectively. These investors had bought 13.95 billion rupees in CCPS of GMR Energy in 2010, and they will retain their residual investment in the company.

GMR Infrastructure gave clarification on the deal to the Bombay Stock Exchange, explaining that the new CCPS would be converted into equity shares of GMR Infrastructure between September and October, 2015. At the time of conversion, the price would be the higher of the average of the weekly high and low of the closing prices of the equity shares during the 26 weeks or the average of the weekly high and low of the closing prices quoted on a recognized stock exchange during the 2 weeks ending 30 days prior to the conversion date, as per the Securities and Exchange Board of India.

GMR Energy is valued at 60 billion rupees.

CalSTRS Committee Approves Staff Discretion in Infrastructure Program

Concluding a February California State Teachers’ Retirement board investment committee meeting, the board revised the system’s infrastructure policy. CalSTRS staff possesses discretion up to US$ 300 million to invest in their US$4 billion allocated infrastructure program. Additional allocations exceeding US$ 750 million by a single firm may be subject to review by the CalSTRS investment committee.

CalSTRS Infrastructure Allocation

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Pimco Keen on Ireland’s NAMA Real Estate Loan Assets


Laurent Luccioni, PIMCO, executive vice president and head of commercial real estate investments, Europe

Ireland’s National Asset Management Agency (NAMA) owns a portfolio real estate loans that were originated by Dublin-based banks. California-based asset manager Pimco is seeking to purchase NAMA’s €4 billion loan portfolio in Northern Ireland. The portfolio could be worth approximately €1 billion if it were put on the open market. Part of the loan portfolio includes undeveloped land which negatively affects the face value of the portfolio.

Pimco with nearly $2 trillion in assets under management has approached Irish policymakers in late 2013 about their intentions to acquire the massive loan portfolio. Pimco previously touted itself as the “authority on bonds.” Other institutional investors have expressed interest in the property loan portfolio as well.

In reaction to investor requests on the loan portfolio, NAMA released a statement, “Nama constantly reviews its portfolio to assess opportunities for maximising returns from loans or assets within the portfolio.”

NAMA added, “In addition, it frequently receives approaches from investors expressing interest in acquiring loans or assets in its portfolio and reviews such approaches on an ongoing basis.”

Pimco Bets on Global Deleveraging in Europe

Pimco executives have been expanding investment capabilities in European fixed income, particularly in property loans. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Abu Dhabi Sovereign Wealth Fund Allocates More Capital to Logistics Partnership

The thirst for logistical property opportunities are driving yield-hungry sovereign wealth funds and other institutional investors to invest larger amounts of capital in real assets. Australia-based Goodman Group, who has partnered with institutional investors like the China Investment Corporation, Malaysia’s Employees’ Provident Fund and the CPPIB, inked a deal with the Abu Dhabi Investment Council to invest more capital in their 50:50 Japan logistics development joint venture. The Goodman Group and Abu Dhabi Investment Council will each throw in an additional US$ 150 million each to the development partnership.

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Gulf Sovereign Wealth Funds Bid For Queensland Motorways

The Queensland Investment Corporation (QIC) is looking to sell the toll road company Queensland Motorways Ltd. With the thirst for Australian transportation infrastructure from institutional investors, QIC is seeking to dispose the highly-regulated motorways to the highest bidder.

The government of Queensland transferred the Queensland Motorways to the QIC in 2011 – being valued at A$ 3.088 billion. The motorways had A$ 2.9 billion of debt before the asset transfer. Some policymakers were surprised at the time, many believed the motorways would be sold off immediately. The justification in 2010 was that the government wanted legislative protections to make certain the tolls would not increase more than the consumer price index.

The motorways are a 43 mile network, counting around 80 million vehicles per annum.

Currently, three groups of investors are bidding for Queensland Motorways. Analysts say bids will be around A$ 5 billion.

Three Investment Consortia
Group 1
Hastings Funds Management
Kuwait Investment Authority
Abertis Infraestructuras

Group 2
Transurban Group
Abu Dhabi Investment Authority

Group 3
IFM Investors (owned by 30 superannnuation funds)
Ontario Teachers’ Pension Plan
Borealis Infrastructure

Alaskan Sovereign Wealth Fund Performs Landlord Walkthrough

Increasing in frequency, sovereign wealth funds center on due diligence when it comes to direct property investing. The Alaska Permanent Fund Corporation’s (APFC) Board of Trustees is conducting due diligence visits in February on flagship properties where the fund owns a significant stake. The trustees plan on touring Tysons Corner Center Mall and the Reserve at Tysons, located in McLean, VA. The Permanent Fund has US$ 500 million invested in Tysons Corner and owns 50% of the property along with REIT-developer Macerich. The wealth fund has been an investor in Tysons Corner Center since early 1985, successfully betting on the wealth and growth of DC’s suburbs.

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Nigerian Sovereign Wealth Commits 10 Million to Ag-Fund

The Nigerian Sovereign Investment Authority (NSIA), through its infrastructure fund, has committed US$ 10 million to an agriculture-focused financing vehicle known as FAFIN, or Fund for Agricultural Financing in Nigeria. Partners in the deal include Kreditanstalt für Wiederaufbau (KfW), a German-owned development bank based in Frankfurt, and the Nigerian Federal Ministry of Agriculture and Rural Development.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Insurance Companies Compete Against Sovereign Funds for Institutional Real Estate

Growing in prevalence, global insurance giants like Munich-based Allianz SE are competing against sovereign funds on core properties. Historically, institutional real estate has been an important asset class for insurers. In 2013, Allianz had issues finding enough “good” deals in real estate.

The 9.1% increase in total deal amount reflects a growing appetite for real assets by sovereign wealth funds.

The mad rush toward real assets was prompted by central banks lowering rates, forcing institutional investors to crave yield in illiquid asset classes like real estate. The bidding conflicts over institutional real estate by sovereign funds, elephantine pension funds, real estate managers and other insurance companies are creating bubble-like conditions in certain markets.

Earlier in the 2000s, insurance companies used to compete for prime properties from real estate investors like the Kuwait Investment Authority, the Abu Dhabi Investment Authority and GIC RE. In some circumstances, insurance companies sold these properties to sovereign wealth funds, yielding nice profits. For example, in July 2008, Tishman Speyer Properties and Prudential Real Estate Investors (owned a German real estate entity, TMW) sold a 90% stake in the Chrysler Building to the Abu Dhabi Investment Council. More public investors are allocating to real estate.

Other sovereign funds and large pensions are either entering the direct property game, or increasing allocation like Norway’s Government Pension Fund Global (GPFG), the China Investment Corporation, Korea’s National Pension Service, CPPIB and China’s State Administration of Foreign Exchange (through special vehicles). Norway’s SWF has even found insurers as partners like Metlife.

Direct Sovereign Wealth Fund Transactions – Real Estate – Billions USD

real estate sovereign wealth fund
Source: Sovereign Wealth Fund Transaction Database, January 2014

The mega shift of sovereign wealth money toward real assets is having a profound effect in global real estate markets. Direct sovereign wealth fund transactions in real estate totaled US$ 16.35 billion in 2012 and increased to US$ 17.83 billion in 2013. The 9.1% increase in total deal amount reflects a growing appetite for real assets by sovereign wealth funds.

GIC Goes Back to School

Singapore’s sovereign wealth fund, GIC Private Limited and Macquarie Capital have announced a joint venture to take a majority stake in Iglu, a student accommodation owner, developer and operator. This is not the first time the GIC has invested in student housing. In 2005, the sovereign fund established a joint venture with UNITE Capital Cities to invest in student housing in England and Scotland.

After the United States and the United Kingdom, Australia is the #3 most popular foreign student destination.

Iglu, which came into inception in 2010, has a property portfolio value of A$ 150 million (US$ 132 million). Properties include a 98-bed facility near Central Station in Sydney, a 395-bed facility in Chatswood (a Sydney suburb) and a 414-bed facility in Brisbane; the Chatswood property is still in the planning stages.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Nigeria Sovereign Wealth to Invest in Nigerian Fannie Mae

Nigeria Sovereign Investment Authority

Uche Orji, CEO of the NSIA

The Nigeria Infrastructure Fund, one of the sovereign funds under the Nigeria Sovereign Investment Authority (NSIA), has received board approval to invest 1.6 billion NGN (US$ 9.92 million) in the Nigeria Mortgage Refinance Company Plc (NMRC). Uche Orji, the managing director and CEO of the NSIA, will join the board of the NMRC.

Nigeria Mortgage Refinance Company

Incorporated in June 2013, NMRC was created by the Nigerian Federal Ministry of Finance in cooperation with the Central Bank of Nigeria, Federal Ministry of Lands and Urban Development and Housing and the World Bank. The NMRC’s goal is to lower the funding cost of residential mortgages, augment the primary mortgage market and to allow more Nigerians home ownership opportunities.

In the press release, Uche Orji states, “Our investment in NMRC is one of the pillars of our investment strategy in the housing and real estate sector, which also includes investment in affordable and mass housing and other commercial real estate. This investment will provide a significant catalyst to expand access to financing for homeownership to Nigerians. We believe this is one of the fastest growing and profitable segments of the economy and will deliver tangible value to the Nigerian people.”

Lagos-based Dunn Loren Merrifield was the transaction advisor and issuing house in the deal.

Sovereign Funds Weary of European Infrastructure Risk

Owning European infrastructure can be a profitable venture for institutional investors like pensions and sovereign funds. However regulatory risk can hamper returns, leaving a sour taste in the mouths of sovereign wealth funds, pensions, and infrastructure funds. On January 10th, London’s Heathrow Airport, regulated by UK’s Civil Aviation Authority, was mandated to cap prices it can levy from airlines from April 2014. The British aviation regulator said prices must be 1.5% below the retail prices index – a far greater price cap than originally proposed. Heathrow officials contend the regulator’s assumptions and forecasts are aggressive. Airlines like Virgin Atlantic Airways praised the ruling, mentioning that there was a need to lessen the steep rise in customer prices in Heathrow.

Investors in Heathrow, through investment holding vehicles, include Spanish giant Ferrovial S.A., GIC Special Investments (a subsidiary of GIC Private Limited), Qatar Holding LLC and the China Investment Corporation perceive the levy caps as draconian.

Across to Norway

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