Asset Allocation

Temasek Gets a Little Boost

Singapore at sunset

Singapore’s Temasek Holdings got a little boost, moving up to a S$ 223 billion net portfolio value. Temasek marks its 40th anniversary; however, returns struggled with a 1.5% total shareholder return in Singapore dollars. The previous fiscal year, the sovereign fund inked 8.9%. The reason for lowered performance given in Temasek’s annual report is weakness in key Asian markets.

View the Profile of Temasek Holdings

Lim Boon Heng, the chairman of Temasek Holdings, mentioned in the press release, “This year has been one of our most active years for new investments – the most active since the Global Financial Crisis – driven by softer Asian markets of interest, as well as the continued recovery of the global economy.”

Sovereign Wealth Centering on Dollar Assets

Despite recent major Asian investments like the investment in A.S. Watson Group, Temasek is betting big on America investing in numerous sectors. To adapt, manage investments and find more attractive deals, Temasek is sending boots to the ground in London and New York. Recently, Temasek Holdings flew out its CEO Ho Ching to open up the New York office, along with the Prime Minister of Singapore (whose wife is Ho Ching). The opening fanfare was courted with CEOs and U.S. policymakers. A giving signal for more U.S. investments is the shift in Temasek’s currency holdings. Temasek’s currency mix in assets in U.S. Dollars started at 6 percent in 2013 to 12 percent in 2014.

Investment Wins Over Divestment

In over a decade, Temasek has invested S$ 180 billion while divesting S$ 110 billion. For March 2014 end, Temasek had net investment of S$ 14 billion, compared to S$7 billion in both 2012 and 2013. The last time net investment crossed S$ 10 billion was in 2008 at S$ 15 billion.

Group Net Profit – Temasek Holdings

Period Group Net Profit
31 March 2014 S$11 billion
31 March 2013 S$11 billion
31 March 2012 S$11 billion
31 March 2011 S$13 billion
31 March 2010 S$5 billion
31 March 2009 S$6 billion
31 March 2008 S$18 billion
31 March 2007 S$9 billion
31 March 2006 S$13 billion
31 March 2005 S$8 billion

Source: Temasek Holdings

Service Providers Bet Big on ESG

esg institutional investor

The concept of ESG (environmental, social, governance) is building greater traction among institutional investors globally, especially in the West. Norway’s Government Pension Fund Global (GPFG), a bellwether among large public investors, is increasingly shifting assets toward environmental-tilted strategies and taking a slightly more vocal role on corporate boards to affect change. This type of activist investing tends to be welcomed among Occidental governments. Seeing the writing on the wall on the service provider front, index provider MSCI acquired GMI Ratings, a developer of ESG analytics, in late June. S&P Dow Jones Indices, which has ESG indices, sees more investor demand for these types of solutions. Julia Kochetygova, senior director at S&P Dow Jones Indices in the ESG practice, provided some insights as to why sustainability-focused investing is gaining traction among institutional investors. “Investing on the basis of ESG criteria, or sustainable investment, is a strategy that aims to provide downside risk protection and capture future growth opportunities,” Kochetygova told the Sovereign Wealth Fund Institute. “What is behind the ESG is usually bigger strategic focus of management and better ability to innovate in products and technologies by capturing emerging market trends or even setting new standards. It also usually means stronger board oversight, higher resource efficiency and lower carbon footprint.”

Climate Change and ESG Demands from Institutional Investors

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EXPLORED: The Opportunity Cost Model Distilled for Sovereign Funds and Pensions

Opportunity Cost Model

David Denison, Professor Michael Brandt and Professor Andrew Ang were tasked to review the active management of Norway’s sovereign wealth fund. In the review, they detailed the “Opportunity Cost Model” as a viable option for long-term institutional investors such as sovereign wealth funds and public pensions. David Denison is the former president and CEO of the Canada Pension Plan Investment Board (CPPIB). The authors propose Norway’s Government Pension Fund Global (GPFG) should adopt the Opportunity Cost Model. Adoption of the suggested model would profoundly change the fund’s operations by allowing it to invest in private markets other than real estate such as infrastructure and private equity. In addition, it would make the sovereign fund allocate more to active managers, increasing mandates. However, the authors warn that the Opportunity Cost Model is difficult to implement and requires the asset owner have a long time horizon and the proper expertise.

Under this model, it is important to highlight that the fund manager has the ability to invest in assets not in the reference portfolio, but all investments are tested against it.

Active Management

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Simsek Speaks: Making the Case for Institutional Investment in Turkey

Istanbul

On May 20th, the Turkish Prime Ministry’s Investment Support and Promotion Agency (ISPAT) hosted the first annual Turkey’s Investment Summit in partnership and coordination with the Sovereign Wealth Fund Institute. Foreign institutional investors, asset managers, public officials and business leaders from more than 30 countries converged on the historic Ciragan Palace Kempinski in Istanbul to discuss and learn about the economic outlook for Turkey and investment opportunities within the country. Over US$ 5 trillion in capital was represented in total with more than US$ 350 billion emanating from public capital such as sovereign wealth funds and pension assets.

Simsek Speaks

The summit commenced with Turkey’s Minister of Finance Mehmet Simsek delivering a keynote address on finance and capital markets in Turkey as well as the country’s economic and political outlook. Mehmet highlighted deepening financial markets as a key objective for his administration. Sovereign wealth funds and foreign institutional investors have been keen on the Turkish banking sector. During the global financial crisis of 2008, Turkey was exclusively the only OECD country in which no explicit or implicit public sector support was provided to the banking sector. Possessing robust capital buffers, Turkish banks have been able to weather the storms of rising interest rates and exchange rate depreciation. In November 2012, Singapore’s Temasek Holdings acquired shares of Turkiye Halk Bankasi AS, the number 2 largest state-owned bank by assets, in a secondary public offering. These public investors have had appetite for privatization efforts in Turkey. For example, Turkey’s state-owned lottery company, Milli Piyango, has generated interest from public funds and other institutional investors.

The labor participation rate is on the rise, and Turkey has created nearly 5 million jobs since the crisis, he added. Annual inflation, forecast at 7.6%, is under control, Simsek said.

Simsek pointed to the March 30th victory of the Justice and Development Party (AK party), the ruling party since 2002, in municipal elections as an indicator of political stability throughout Turkey. He told the room to ignore the “political noise” broadcast by international media outlets because “political noise is part of Turkey’s day to day life.”

“Political stability is here to stay,” he said. “Corruption allegations were politically motivated.”

Turkey as an Energy Hub - Panel Discussion at Turkey's Investment Summit 2014

Turkey as an Energy Hub – Panel Discussion at Turkey’s Investment Summit 2014

 

Current Account Deficit Outlook

Turning to Turkey’s economic outlook, Simsek addressed the issue of whether the country is entering a low growth era. The finance minister noted Turkey’s fast recovery from the global financial crisis and gave evidence that Turkey has outperformed all emerging market regions except Asia. The labor participation rate is on the rise, and Turkey has created nearly 5 million jobs since the crisis, he added. Annual inflation, forecast at 7.6%, is under control, Simsek said.

Simsek attributed Turkey’s high current account deficit to strong domestic demand and decreased demand for exports caused by the Eurozone crisis and the Arab Spring, which jointly affected many of Turkey’s top trading partners. However, the finance minister said that the current account deficit as a percentage of GDP has declined to 5%. Another important factor of possible current account deficit reduction is the lowering of the global price of energy and Turkey’s desire to develop renewable energy throughout the country. The European Bank for Reconstruction and Development (EBRD) created a financial loan for Turkiye IsBankasi to fund mid-sized renewable energy projects in Turkey.

Moreover, he said that healthcare will become Turkey’s next major export industry as massive healthcare campuses are being built in big cities throughout the country. Europeans are travelling to Turkey for healthcare tourism and retirement. In March 2014, the Middle East unit of PineBridge Investments took a 50% stake in Romatem, a physical therapy and rehabilitation services chain in Turkey, from the company’s founders. This was Pinebridge’s second major investment in Turkey.

NZ Super Fund Executive Leaves for QIC

Queensland Investment Corporation (QIC) has selected Neil Williams for the newly created role of managing director of multi-asset and investment solutions. Williams currently serves as chief investment advisor and head of strategic tilting for the Guardians of New Zealand Superannuation Fund (NZSF). He will leave NZSF at the end of May and begin working for the Brisbane-based, state-owned investor some time thereafter.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Abu Dhabi Investment Authority Hires New Head of Research for Indexed Funds

Xiaowei Kang has been hired to be head of research in the indexed funds department at the Abu Dhabi Investment Authority (ADIA), the largest sovereign wealth fund in the GCC.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Korea Post Seeks Hedge Fund Managers

Seoul-based Korea Post is allocating more toward hedge funds in a push for greater global diversification. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

See How Much the Largest Sovereign Wealth Fund Has Invested in Russia

Yngve Slyngstad, CEO of NBIM

Yngve Slyngstad, CEO of NBIM

Norway’s massive sovereign wealth fund is reviewing its portfolio allocation and risk profile on Russia. NBIM Chief Executive Officer Yngve Slyngstad told reporters in Oslo that in regard to Russian investments, “We are at any given time also considering conditions that have dimensions of geopolitics and geopolitical risk.”

Given the threat of sanctions from the West, institutional investors are growing cautious about their Russian investments. For example, in July 2013, the California Public Employees’ Retirement System (CalPERS) acquired a stake in Moscow’s 2.2 million-sqft Metropolis Shopping and Entertainment Mall through the Hines CalPERS Russia Long Term Hold Fund. The price was reported to be in the US$ 1 billion range.

The nearly US$ 850 billion sovereign wealth fund as of December 31, 2013 has a US$ 7.9 billion exposure to Russia in fixed income and equity investments. In essence, a 0.9% direct exposure to Russian assets. Norway’s GPFG has essentially zero exposure to Ukrainian assets.

norwaySWF_russia_dec2013

Exposure to VTB Bank

During that time period, the sovereign fund owned a 4.6% equity interest in VTB Bank OJSC. VTB Bank is led by Andrey Kostin, a key member of Putin’s United Russia party. Kostin has been an advocate for turning VTB into an international bank, setting up offices in Singapore, Dubai, London and Hong Kong. The investment banking subsidiary, VTB Capital, is seeking to cutting its staff in London and New York following the rapid succession of events unfolding in the Ukraine.

In addition, Norway’s GPFG has equity exposure to state-owned Sberbank of Russia – the largest lender in Russia. Ukraine’s acting Prosecutor General Oleh Makhnitskyi has accused Sberbank of “financing terrorism.” Sberbank denied the accusations.

NBIM’s Fixed Income Holdings in Russia

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Abe’s Yonezawa to Chair World’s Largest Pension Fund

Japan Prime Minister Shinzo Abe created a group to recommend changes in how the world’s largest pension fund was to invest its massive pool of assets. One of those 10 members, Yasuhiro Yonezawa, will now be chairman of Japan’s Government Pension Investment Fund (GPIF). Yonezawa is a 63-year-old professor at Waseda University’s Graduate School of Finance who was cheerleading that the US$ 1.26 trillion GPIF should purchase equities and overseas assets, while selling off domestic fixed income. The GPIF investment committee was reduced from 10 members to 8 members.

The GPIF is on target to invest more overseas, increase equity allocation and deploy assets to infrastructure.

GPIF Investment Committee List

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Sovereign Wealth Themes: The Sun Never Sets on Sovereign Wealth II

sovereign wealth fund reportThis brief 3-page report is available for download for SWFI subscribers. This report gives a concise overview on the proliferation of sovereign wealth funds.

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April 2014 – The Sun Never Sets on Sovereign Wealth II

The financial economy has become more complex and interconnected, especially with the proliferation of sovereign wealth funds, rivaling other asset owners in size and sophistication. For example, according to the Investment Company Institute, the size of U.S. defined benefit public plans amounted to US$ 5.6 billion from December 2013. As of April 2014, sovereign wealth funds as an investor class totals US$ 6.4 trillion.

Part II – Sample
Sovereign wealth funds can be economic anchors for a society. The reason why many sovereign wealth funds are created and maintained is economic in nature. Countries fearful of Dutch Disease, hastened the use of overseas investment vehicles to sterilize natural resource government inflows. Sovereign wealth funds can have a strong fiscal stabilizing influence as well.

Alabama SWF Seeks International Equity Manager

The Alabama Trust Fund doled out an RFP looking to hire an active international equity manager to manage US$ 100 million. The allocation could be either a separate account or with commingled managers. According to the RFP, the manager must have experience managing international equity portfolios for at least three years and have a minimum of US$ 1 billion in assets toward international equity portfolios.

With a 24% allocation to international equity, the fund currently has these external managers running that portion – according to its investment consultant, Callan Associates:

  • Batterymarch Financial Management
  • GMO
  • Thornburg Investment Management
  • Wells Fargo

The trust fund is funded by Alabama’s oil and gas royalties. Alabama’s State Oil and Gas Board provided information to the Treasurer mentioning that production is expected to continue to decline.

Mubadala Shifts Focus from Emerging Markets

emerging markets sovereign wealth funds

Mubadala Development Company is altering its course from emerging markets to developed markets, its Deputy CEO Waleed al Muhairi told Reuters on February 25th. The Abu Dhabi state-owned investment vehicle had turned its attention to emerging markets as the United States and Europe were battered by financial crises. Public stocks in emerging markets had a challenging 2013. The Federal Reserve is expected to pullback on asset purchases. The sovereign wealth executive stated the fund will begin widening its footprint in markets with long-term potential in 2014.

“We’re of course looking at emerging markets, but also to markets like the U.S. and Europe in particular, as recession is being replaced by signs of recovery,” he said.

Mubadala had US$ 55.5 billion in assets under management as of June 2013. Its European portfolio currently consists of renewables (United Kingdom, Germany and Spain), semiconductors (Germany) and aerospace technology (Switzerland and Italy).

In the United States, Mubadala has existing investments in information and communications technology (Prodea Systems and Damballa), real estate (Viceroy Hotel Group) and semiconductors (Global Foundries). The sovereign fund also holds shares in General Electric, Advanced Micro Devices, The Carlyle Group, EMI Music Publishing, John Buck Company, The Raine Group LLC, and Related Companies.

See the Main Reason Why Norway’s Sovereign Wealth Fund Likes Equities

The US$ 838 billion sovereign fund had a 26.28% return in its equity portfolio versus a 0.1% return in the fixed income portfolio. In total, the sovereign fund posted a 15.9% return in 2013.

In recent news, the mega sovereign fund became a net seller of stocks to comply with its limit on public equity holdings. 150 billion kroner worth of stock was sold (~US$ 25 billion) in the fourth quarter of 2013.

Norway’s sovereign wealth fund is managed by Norges Bank Investment Management.

Investment Returns -Asset Class – Norges Bank Investment Management

Year Equity Portfolio Returns (%) Fixed Income Portfolio Returns (%)
1999 34.81 -0.99
2000 -5.82 8.41
2001 -14.6 5.04
2002 -24.39 9.9
2003 22.84 5.26
2004 13 6.1
2005 22.49 3.82
2006 17.04 1.93
2007 6.82 2.96
2008 -40.71 -0.54
2009 34.27 12.49
2010 13.34 4.11
2011 -8.84 7.03
2012 18.06 6.68
2013 26.28 0.1

 

Click to Enlarge
nbim_assetclassreturnsFEB2014

>> See how the sovereign fund’s fixed income asset class performed?[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Are Sovereign Funds Correctly Assessing Risk in Their Illiquid Portfolio

illiquidity premium

Asset-heavy sovereign wealth funds and public pensions are widely recognized for holding a considerable amount of illiquid assets, particularly in private equity and real estate. For example, the California Public Employees’ Retirement System in October 2013, held 20% in private equity and real estate. The California pension goliath is attempting to unwind a portion of these assets and reduce the number of manager relationships. Across the Pacific, Singapore’s GIC has a band average of 25% targeted to private equity and real estate in their policy portfolio. The GIC is also periodically involved in taking hefty stakes in companies via private placement. Higher typical returns coupled with these public investors’ long-term investment horizons, on the surface, seem to make sense. However, there are hidden costs of holding a large illiquid portfolio.

A deadly outcome of a liquidity crunch is a fire sale – a board’s worst nightmare.

Bailout Fund – Ireland’s Experiment

Future unexpected liquidations can be a monstrous cost if the illiquidity premium is not properly priced through various stress tests. A distinct amount of sovereign funds explicitly do not have the types of liabilities pensions’ possess. In times of economic crisis, national governments may call upon sovereign wealth for monetary assistance. For example, during the global financial crisis of 2007, the Irish National Pensions Reserve Fund (NPRF) was used as a policy tool to bailout two noteworthy Irish banks, Allied Irish Banks and the Bank of Ireland. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Future Fund Returns 17.2 Percent for 2013

Australia’s Future Fund returned 17.2% from the 12 months ending on December 31, 2013 – beating the benchmark target return of 6.8%. At the start of 2013, the Future Fund’s chief investment officer, David Neal, wanted a major shift of investment away from fixed income, toward equities.

In a press release, outgoing managing director, Mark Burgess stated, “Over the last year we have positioned the Fund to benefit from the market strength that has flowed from global policy efforts to lift economic activity. The portfolio has continued to perform well generating strong returns.”

Burgess mentioned in a recent teleconference that the high rate of return will be difficult to extract in the future. He added, “Many of the factors behind it are already priced into the asset classes.”

Peter Costello

Peter Costello, the former treasurer, has been appointed chairman of the Future Fund after David Gonski departs to take the chairman role at ANZ Bank. Costello has been a member of the board of guardians since 2009.

Gao and other Sovereign Funds in Davos

Some sovereign wealth funds and mega pensions have converged on Davos, the Swiss city where the World Economic Forum is held. Bahrain’s Mumtalakat Holdings, a frequent Davos delegate sender, had their CEO Mahmood al-Kooheji representing Bahrain. Kooheji gave an optimistic update on Gulf Air citing layoffs and restructuring changes. In addition, Kooheji told Reuters reporters in Davos, “This year we will be more active in investments……. We are looking across the globe and open for investments in all sectors except aviation and real estate. We’re very active in the broader ICT (information and communications technology) space and hope to do some acquisitions there.”

Another visitor to Davos is Gao Xiqing who has retired from the China Investment Corporation. China was a major theme in Davos and the reforms being swept in to balance trade versus domestic consumption. In fact, eight sessions focused on sustainable growth in mainland China. Similar to last year at Davos, economists like Nouriel Roubini, founder of Roubini Global Economics, predicts Chinese growth to slow down.

Government officials from Georgia made a Davos appearance including Georgian Prime Minister Irakli Garibashvili . He told reporters, “Georgia lacked long-term capital, this is why we will start a new sovereign wealth fund in February and are planning new infrastructure projects.”

Some attendees on the institutional investors’ side happen to be on the Sovereign Wealth Fund Institute’s Public Investor 100 ranking for 2013. Other major Asian institutional investors include GIC Private Limited who sent group president Lim Siong Guan. The Kuwait Investment Authority sent managing director, Bader M. Al Sa’ad. Shahmar Movsumov, executive director of the State Oil Fund of Azerbaijan, also made an appearance.

Other mentions include CPPIB’s Mark Wiseman, Yngve Slyngstad and Choi Kwang.

BizAsia’s Martina Fuchs Speaks with Mr. Gao Xiqing

Texas Teachers’ Assets Hit $119.7 Billion at September Close

According to a trustees’ meeting report, the Austin-based Teacher Retirement System of Texas had assets grow 3.7% to US$ 119.7 billion in the quarter ending on September 30, 2013. In the third quarter, the pension system earned 4.4% and outperformed its benchmark by 16 basis points. U.S. stocks (especially small-cap) and private equity were major contributors of return increases.

Increasingly, larger U.S. pensions are negotiating fees with long-only equity asset managers. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Brief Peak Inside the SAFE

What started as a small operation during the Asian Financial Crisis of 1997 now reverberates across capital markets and asset classes. The SAFE Investment Company invests money on behalf of China’s State Administration of Foreign Exchange (SAFE). China’s explosive growth over the last decade has filled the SAFE with foreign reserves, surpassing Japan’s massive pool of U.S. treasuries. As of October 2013, China’s foreign exchange reserves increased to US$ 3.66 trillion. China’s wealth is viewed by some government officials with conservatism and is described as xue han qian or “blood-sweat money” on the backs of Chinese workers.

China’s Foreign Reserves (Click to Enlarge Image) – Billions USD
SAFE-fxreseves-chinanov2013
Source: State Administration of Foreign Exchange

An ancient Chinese proverb, 富 不过三代 or fu bu guo san dai, essentially means, “wealth does not pass three generations.”

If one were to read more deeply into the Eastern adage, it can be interpreted like so: The first generation destroys the initial wealth; the second generation sacrifices and works hard, and the third generation learns to save – and the cycle repeats. The Chinese government went through three decades of transforming the country into a manufacturing powerhouse. In the context of the proverb, the Chinese have entered the “third generation.”

The 2007 shocks from the global financial crisis and Western banks’ massive deployment of stimulus measures have created a flood of inflationary currency in international markets. In addition, interest rates of U.S. treasuries plummeted. In 2007, officials at SAFE reacted; they moved their strategy to embark on diversifying into equities, specifically large cap stocks. They weren’t content to simply move capital into different asset classes, SAFE moved capital into different geographic markets such as Spanish bonds.

Investment managers at SAFE have held a long-term view of equity markets. Growing bold and opportunistic, SAFE’s managers predicted that the market drops of 2008 would trend upwards in the long-run. Not all market dislocations and opportunities were positive. SAFE opted to dip their toes into private equity and trust private equity firm TPG Capital to safely manage their capital. SAFE invested US$ 2.5 billion into a fund managed by TPG which invested in the now-failed Washington Mutual. Co-founded by David Bonderman, TPG later admitted their fifth fund was a mess.

Zhu’s Appointment[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Princeton University Endowment Returns 11.7%

David Lee

David Lee

The US$ 18 billion Princeton endowment recently boasted an 11.7% return in the fiscal year ending June 30, 2013. The 10-year annualized return ending on that date was 10.2 %.

Princeton University Provost David Lee noted that the large endowment would help benefit students through financial aid and scholarship funding. According to Lee, Princeton’s “scholarship budget has grown to $121.4 million this year.” That’s about US$ 6 million more than the university spent on scholarships last year, according to tax filings made by the university.

According to the university’s website and tax filings, during the 2012/2013 school year, roughly 4,400 undergraduate students received tuition scholarships totaling US$ 110 million, or US$ 25,000 per recipient. Tuition for Princeton runs US$ 40,000 per annum.

The endowment aims to spend between 4-5.75% of the endowment per year. The report noted that Princeton’s spending was well within those parameters.
Princeton doesn’t disclose specific holdings in its fund, but an announcement over the summer confirmed that the endowment didn’t hold any “direct” interests in weapon manufacturers. The announcement was made in response to a petition filed by university professors calling for a divestment of stock in such companies.

Reflections with CEO/CIO of bcIMC, Doug Pearce

Doug Pearce

Doug Pearce, CEO/CIO, bcIMC

On August 27, 2013, The British Columbia Investment Management Corporation (bcIMC) issued a press release announcing the retirement of its CEO/CIO, Doug Pearce, after a 25-year tenure with the public investor. Mr. Pearce granted the Sovereign Wealth Fund Institute an interview outlining his role over the years and how he’s seen the asset management industry change since he began 37 years ago. The bcIMC is a major Canadian public investor – see rankings here.

The Sovereign Wealth Fund Institute asked Mr. Pearce how his views on asset management have evolved during the 25 years the bcIMC has ballooned from a C$ 15.9 billion fund to just over C$ 102 billion.

Mr. Pearce responded first with a correction. “Actually, that 15.9 number we’ve been using for the press isn’t quite right,” he said. “The number was closer to C$ 9 billion.” He then continued by detailing the fund’s conservative roots. “When we started in ’88 we were invested in Canadian bonds and the Canadian money market exclusively. Starting quite early, we worked on getting legislation to start allocating to equities and real estate. That began in 1989, and we implemented it in 1990.”

Another major change, he noted, was transitioning out of purely Canadian investments and developing a more global portfolio. Whereas the fund started at 100% Canadian investments, it has moved to 60% Canadian and 40% ex-Canada with a 50/50 split on the horizon.

Mr. Pearce sees a challenging investment environment ahead, noting that the “tailwinds of declining interest rates since 1981″ have helped bcIMC best its benchmark. He sees the low return environment compounded with an inevitable rise in interest rates as “great possible headwinds.”

Another challenge Mr. Pearce sees isn’t directly linked to investments, per se, but policy and the general public’s opinion. He clarified by saying, “The general public doesn’t really understand the value of long-term capital. They get caught up in quarterly returns when we really should be looking at 10, 15, 20 year investment horizons [for public investors].” A number of the largest sovereign wealth funds report only on a 5, 10, and 20-year basis publicly.

He also mentioned special interest groups leading cries against the cost of defined benefit plans. He laments that there isn’t enough community outreach to explain that the investments these funds make in Canadian businesses directly helps the people so opposed to their dealings. “Some of the businesses we support, like TimberWest [a privately managed forest landowner], pay wages and support communities; when the employees retire, they’ll also have a pension benefit waiting for them.”[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]