Sovereign Wealth Fund Institute

Owned by the Province of Alberta, the Alberta Investment Management Corporation (AIMCo) manages investments for the Alberta Heritage Fund, public pensions, and other governmental funds.  They have been an active investor in several prolific direct investing strategies.  In the next twelve months, the crown corporation could spend as much as C$700 million (US$ 720 million) in private equity type purchases.  These would mostly likely be mid-market type transactions.  AIMCo has spent a tremendous amount of internal resources and time beefing up their private equity / direct investment team.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Georgia is a country with ripe agricultural land and located strategically by the Black Sea. The country’s soil and climate has made farming a very productive sector for the overall domestic economy. Crops such as corn, wheat, hazelnuts, citrus fruits, and grapes are dominant. Hassad Food, the sovereign wealth enterprise of the Qatar Investment Authority is on the lookout for agricultural investments. They recently made a visit to meet with the Finance Minister of Georgia. In addition, they also discussed about Qatari Diar’s possible investment in developing hotel properties in the country.

It might be a strategically convincing idea to partner with Qatar, as Georgia imports nearly all its required materials for gas and oil products.

Please view Park Alpha’s latest report on Global Utilities by the Numbers – May 2011. The report calculates and tabulates financial and investment data for select publicly-traded global utility companies.

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Park Alpha is the consulting arm of the SWFI.

Several Chinese renewable companies are grabbing the attention of sovereign funds. Sovereign funds understand that energy and technology are key drivers for stock performance and they want exposure to this industry. In fact, many of these Chinese companies are taking advantage of the current IPO market in Hong Kong for Chinese securities.

Energy efficiency and renewable energy generation are two key areas within the renewable energy sector that have attracted the interest of SWFs. Huaneng Renewables Corp. is planning to IPO and has secured US$ 335 million from nine cornerstone investors. This includes $60 million from the China Investment Corporation and $50 million from Temasek Holdings. Huaneng Renewables Corporation is the wind power unit of China Huaneng Group. The firm had planned to IPO in December, but decided to postpone due to market volatility. Earlier, Singapore’s GIC invested in Nobao Renewable Energy Holdings Ltd. Nobao Renewable Energy uses proprietary technology that utilizes energy stored in the ground to provide heating, cooling, and hot water to buildings. Investing in the renewable energy sector is not a new occurrence, but has picked up after the middle of 2010. In 2009 the CIC, through its sovereign wealth enterprise Chengdong Investment Corporation backed GCL-Poly Energy Holdings Limited. They ended up closing the joint venture between the organizations.

The China Investment Corporation sees tremendous potential to invest in Russia and has already done so. The CIC and Harvard University were among a crop of new investors who purchased a 10% stake in Bank VTB OAO. Russia is planning a wave of privatizations to open up its markets and increase foreign capital investment. Moscow wants to challenge London, as a global financial center and is undertaking several initiatives to do so. It also wants to appeal to private equity investors.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

In November 2007, the Emirates Investment Authority (EIA) was created by Emiri decree. They are the United Arab Emirates’s federal sovereign wealth fund. The sovereign fund has characteristics of a strategic development sovereign wealth fund, similar to that of the Mubadala Development Company and Bahrain’s Mumtalakat Company. This marks a stark contrast in style to the Abu Dhabi Investment Authority. The sovereign entity is even debating whether to raise debt to enable more acquisitions.

The EIA controls positions in several UAE firms such as Etisalat (Emirates Telecommunications Group) and du.  Etisalat operates in over 18 countries and services over 100 million customers in Asia, the Middle East, and Africa.  The EIA holds around 60% in Etisalat.  In terms of direct investments, they are allocated towards telecommunications; however, they see possibilities of jumping more into financial services, education, food production companies, and healthcare. The EIA does not only invest in just direct stakes in companies. They are also active in bonds and private equity funds.

Asian sovereign funds have been active in investing in Latin American natural resources. The Korea Investment Corporation, Canada’s Ontario Teachers’ Pension Plan (OTPP), and another investor are planning to invest in Manabi Holding SA. Manabi Holding SA is a Brazilian special purpose company that manages steel assets and iron ore exploration.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

According to an interview by Reuters, Gita Wirjawan, Chairman of the Badan Koordinasi Penanaman Modal (BKPM), says the China Investment Corporation is planning to offer $4 billion in infrastructure project loans. The BKPM is an investment board that coordinates business between businesses and government. Its aim is to increase foreign direct investment in Indonesia. Another goal is for the agency to improve the lives of its citizens by creating domestic jobs. The types of Indonesian infrastructure projects were not specified. Indonesia is an Asian emerging economy with a growing middle class in desperate need of infrastructure. If the proper infrastructure is not built in a timely fashion, it can harm economic growth and decrease country competitiveness.

Most sovereign wealth funds prefer to invest in developed infrastructure in Western economies. Developed infrastructure is less risky and cash flows do not vary as much as infrastructure projects. In addition, regulation and government transparency are key planks for SWFs to plunk down significant amounts of capital. Indonesia is at an economic crossroads. The country is aiming to build over 20,000 km of roads and provide at least 15,000 MW through power plants in the next few years. Indonesia is also ripe with natural resources in oil and gas. Lastly, Indonesia is fortunate enough to be able to reap the benefits of hydroelectric power, a renewable source of energy that contributes to an overall low carbon economy.

Kuwait is strengthening its economic position in Egypt. The Kuwait Investment Authority (KIA) is planning to set up a sovereign wealth enterprise to invest US$ 1 billion in Egypt’s stock market. This is a significant symbol of confidence in the Egyptian capital markets after the overthrow of Hosni Mubarak. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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Tony Tan

The press release states, “GIC officially opened its India office in the city of Mumbai on 31 March 2011. This is GIC’s eighth overseas office outside Singapore. GIC’s India office will be headed by Mr Kishore Gotety. The office will be made up of more than 10 investment and asset management professionals. The team aims to foster close relationships with key Indian partners who share GIC’s values as a responsible and long-term investor.

GIC Deputy Chairman and Executive Director, Dr Tony Tan, said, ‘GIC has been amongst the earliest institutional investors in emerging Asian markets. In India, GIC has been investing across the public and private markets since the early 1990s. The setting up of the India office demonstrates GIC’s commitment to secure a larger role in the Indian growth story.’”

Read more: GIC Press Release

Spain has struggled to stabilize their banking sector through the lasting effects of the global financial crisis. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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By Alexia Wai-Chun Tye

Guest Contributor

France’s Fonds Stratégique d’Investissement (FSI) generated creditable results for 2010, reinforcing its raison d’être as France’s answer to the sovereign wealth fund model, albeit with a distinct national development mandate focusing solely on French domestic markets.  [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

The views, opinions, positions or strategies expressed by guest contributors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of the Sovereign Wealth Fund Institute or any employee thereof.

Yngve Slyngstad

“In a year marked by the European sovereign debt crisis and fears of an economic slowdown in Europe, the fund posted its fifth-highest result ever,” says Yngve Slyngstad, chief executive officer of Norges Bank Investment Management (NBIM), which manages the fund.

The fund’s equity holdings returned 13.3 percent in 2010, measured in international currency, while fixed-income investments returned 4.1 percent. The overall return was 1.1 percentage points higher than the return on the fund’s benchmark indices.

“Globally, stocks and bonds gained last year, helped by improving company profits, low interest rates and stimulus measures from the European Central Bank, the Bank of Japan and the US Federal Reserve,” Slyngstad says. “The fund also benefitted from its long-term approach, as large equity purchases during the financial crisis in 2008 and in the first half of 2009 yielded solid returns. The value of our fixed-income investments also continued to recover after steep price drops two years earlier.”

The fund’s best-performing stock sector was basic materials, followed by the industrial and consumer goods sectors. The biggest-gaining stock investments, measured in krone returns, were food company Nestlé, Apple and oil producer Royal Dutch Shell. The weakest performers were Banco Santander of Spain, oil company BP and Banco Bilbao Vizcaya Argentaria of Spain.”

Read more: Norges Bank

This interview appears in the 1Q Y2011 issue of the Sovereign Wealth Quarterly.

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Sovereign wealth funds are constantly examining investment opportunities across the globe. Investment in public infrastructure by foreign investors has been in the news headlines for months. Now, we are seeing state governments market their securities overseas in hopes to lure investors in their bonds. State governments across the United States are in dire fiscal shape. According to the Center on Budget and Policy Priorities, a US policy organization, New Jersey will have a $10.5 billion projected FY 2012 shortfall.

Selected States with FY 2012 projected shortfalls include:

• California – $25.4 billion
• Illinois – $15.0 billion
• New York – $9.0 billion
• Florida – $3.6 billion

Source: Center on Budget and Policy Priorities

As residential home foreclosures increased and values plummeted in the United States, it significantly lowered taxable revenues to the government. This lower tax base has starved the growing beast of state government. State politicians are scratching their heads. Some leaders want to raise taxes and fees, while others want to cut services and reform pensions. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

This interview appears in the 4Q Y2010 issue of the Sovereign Wealth Quarterly.

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New Ownership Structure

Singapore’s GIC is active in energy infrastructure whether it’s in a developed or developing economy. The GIC partnered with ArcLight Capital Partners, LLC and GE Energy Financial Services to become investment partners in five Georgia natural gas-fired power plants. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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According to the press release, “Abu Dhabi and Sana’a– Mubadala Oil & Gas and Yemen Company for Investments in Oil and Minerals (YICOM) announced today that they have signed a Memorandum of Understanding (MOU) on cooperation in the exploration and production sector of the oil and gas industry in the Republic of Yemen.

The MOU provides for an exchange of technical information between the two companies and co-operation to assess opportunities to work together on new investments, field redevelopment and expansion projects and other oil and gas operations in Yemen.

The MOU was signed by Ali Saleh Al- Kadi, Executive General Manager, Yemen Company for Investments in Oil and Minerals and Suhail Al Mazrouei, Deputy Chief Executive Officer, Mubadala Oil & Gas. It was witnessed by His Excellency Amir al-Aydarus, Minister of Oil and Minerals of the Republic of Yemen and His Excellency Abdullah Matar Al-Mazroui, United Arab Emirates Ambassador to Yemen.”

Read more: Mubadala Press Release

This 5 page report is avaliable for download for SWFI subscribers.  This report gives a brief overview on Brazil’s current situation and sovereign wealth fund involvement.

Latin America is a premiere destination for economic growth. In this particular study we are going to purely focus on Brazil. Brazil is a South American country with a young demographic, has increased trade liberalization, burgeoning manufacturing hubs, and has a large sector of natural resources. The general macroeconomic trends for Brazil have been a gradual decrease in interest rates, greater accumulation of foreign reserves, and positive year-over-year real GDP growth.

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The majority of sovereign wealth funds continue to rely on external managers and consultants for various reasons.  Over time asset managers have evolved their product offerings to accommodate sovereign wealth investors.  Whether they create sustainable alpha generating portfolios, enhancing risk management, or creating stable pools of liquidity, external managers will persist to provide a suite of products to perspective SWFs.  This was not the case in 2001, 2002, and even 2003.  Pension funds in the United States were the darlings of fund managers.

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BNN Summary: “Sovereign Wealth Funds have been a big part of the Middle East’s economic growth. They were all the rage years ago. So what about now? BNN speaks to Michael Maduell, President, Sovereign Wealth Fund Institute.”
see video BNN News

Sovereign wealth funds are patiently dipping their toes in these so called frontier markets.  Frontier markets are even more risky than emerging markets.  It is a subset of emerging markets.  Some examples of Frontier markets include: Argentina (defaulted on their debt), Kazakhstan (former USSR), Lebanon (Cedar Revolution), Sub-Saharan Africa, and Pakistan (political instability).  Sovereign wealth funds that have direct investment experience in frontier markets have been making significant plays recently.  [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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Sovereign wealth funds and other institutional investors are lukewarm when it comes to Asian real estate investment. Asian sovereign investors are becoming more risk averse to non-core real estate and dumping portfolios of non-core and opportunistic real estate.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

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Pre-Order Today and Save Money.
Release Date: Beginning of September 2010

Save 15% for non-SWFI Subscribers or Save 45% for SWFI Subscribers off the original price of US$ 850 when you Pre-Order before August 31, 2010.

Maintaining intelligence on sovereign wealth fund asset allocation is essential for all fund managers, firms seeking capital, investment advisors, institutional real estate professionals, institutional investors, placement agents, law firms, consultants and other investment professionals.

Our dedicated team of research analysts has contacted funds, governments, fund managers, and other industry professionals from around the world. We do this to ensure the information held in this year’s publication is comprehensive, relevant, and up to date.

Some topics covered include:

• 2010 & 2011 Asset Allocations of many SWFs
• Expert Commentaries
• Investment Trend Analysis
• Investment Holdings Analysis
• Future Asset Allocation Strategies
• Plus more…

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“The Alaska Permanent Fund Corporation Board of Trustees authorized a new asset allocation and approved a manager search during their regular meeting on May 20 and 21 in Anchorage.

‘We’re taking a fresh approach to how we view our asset allocation,’ said Michael Burns, CEO ‘We’re recognizing that some investments within an asset class may have more in common with other asset types with regard to expected risk and return. And since our goal at the highest level is to balance the risk and return of the total portfolio, it makes sense to segregate assets by their characteristics, rather than simply by type.’

The new asset allocation is as follows:

2% – Cash (investments with a duration of less than 12 months)
6% – Interest rates (government or government related bonds)
53% – Company exposure (stocks, corporate bonds and private equity)
18% – Real assets (Real estate, infrastructure and TIPS)
21% – Opportunity pool (includes absolute return and distressed debt)

The allocation includes real return mandates, a new asset allocation for the Permanent Fund. In the Fund’s absolute return mandate, managers generally focus on publicly traded assets, such as stocks and bonds. Under a real return mandate, managers would invest in the same range of assets as the Permanent Fund. They would be required to structure their portfolios to meet a 5% real return target with a same level of risk as the full Permanent Fund portfolio.”

read more: APFC

Reuters reports that, “The Kuwait Investment Authority (KIA), the Gulf Arab state’s sovereign wealth fund, has reduced exposure to global stock markets since October, shifting assets instead into short-term cash funds, a government report said. In a briefing to parliament, the government said KIA had cut the ratio of international share investments in a key fund in a bid to minimize the effect of the global financial crisis on Kuwait, the world’s seventh-largest oil exporter, according to a copy of the report obtained by Reuters on Sunday. The news comes after KIA, which manages Kuwait’s substantial oil-generated assets, last year burned its fingers by buying into U.S. banks such as Citigroup and Merrill Lynch before both stocks nosedived and the latter filed for bankruptcy protection.

Kuwait Investment Authority, which like other sovereign wealth funds does not disclose its investment policy, had come under fire in parliament for making those investments.”

read more: Reuters

According to Emirates Business, ADIA “has started plans to enhance disclosure of its operations in line with an agreement with the IMF last week. But the giant sovereign wealth fund yesterday said transparency was also required by investment recipient countries as this would lead to better understanding with SWFs and allow them to play a more active role in global financial stability. ‘Adia has disclosed its broad asset allocation and is engaged in an ongoing process to enhance disclosure in all these areas, including compliance verification,’ said Hamad Al Suwaidi, Adia Director and Abu Dhabi Finance Department Undersecretary.”

read more: Emirates Business

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The press release states, “Temasek Holdings (Temasek) is expanding its focus on India and will be opening an office in Mumbai, India. This move reflects Temasek’s optimism in the potential of the Indian market, as well as Temasek’s commitment to participating in and contributing to the growth and success of India, at a time when the Indian economy is at a point of inflexion.

Leading the team in India would be Mr Manish Kejriwal, who is joining Temasek as its Managing Director, India. Mr Kejriwal will be responsible for overseeing Temasek’s interests in India. Mr Kejriwal will be supported in India by Mr Ravi Krishnasamy, currently a Director of Investments at Temasek.

In India, Temasek is open to evaluating opportunities in multiple sectors and at different stages, but the focus will mainly be on making direct investments into companies with good growth potential. In addition, Temasek will work with the Temasek-Linked Companies (TLCs) to identify investment opportunities in India.

As an indication of Temasek’s interest in India, it has made a few investments in India recently. Temasek has invested a 5.2% stake in ICICI Bank, and has set up the US$100 million Merlion India Fund which aims to invest in promising mid-to-late stage Indian companies.

Mr. Kejriwal joins Temasek from McKinsey & Company, Inc. where he is a Partner. He is the hub leader for McKinsey’s corporate finance & strategy practice in India, and was responsible for all merger & acquisition engagements for both Indian and international companies looking at entering the Indian market. He is also the co-leader of McKinsey’s business process outsourcing & offshoring practice in India and is in the global leadership team of the private equity practice. Mr Kejriwal has previously been based in New York and Cleveland.”

Read more: Press Release

The press release states, “Temasek Capital announced that it has launched “inCube”, an innovative incubation programme aimed at helping and supporting startups, early stage and established technology companies bring their products and services to world markets. To be marketed under the brand name “inCube”, the programme will leverage on Temasek’s extensive network of companies and global business partners to offer incubatees a unique combination of seed funding, network support, facilities, management support and branding.

2 Mr Tan Soo Nan, Chief Executive Officer of Temasek Capital, explained, “We want to capitalise on the strong growth in R&D activities in Singapore as well as in other parts of the world. inCube is not just mere physical space. It allows the incubatees to interact with a suite of complementary services and affinity partners, ranging from financial management support to marketing, human resources and research institutes. What sets inCube apart from other incubators is our ability to offer incubatees access to global markets, particularly China and India, through our network of incubator facilities. inCube is therefore well-positioned to transfer new technology and business concepts into Singapore, and help Singapore companies accelerate their growth and expand globally.”

3 inCube is actively developing a global network of incubator facilities to foster synergies, and has set up three centres in three technology cities in Asia – Singapore, Chennai (India) and Shenzhen (China). There are plans to link inCube with some of the leading incubators in other technology cities in Australia, Europe, Japan, Korea and the United States.

4 For a start, inCube has signed on two incubatees: eGurkha and Bijitec. eGurkha is a software company that has developed a suite of monitoring applications which helps e-businesses to improve the reliability and responsiveness of their web sites through effective and proactive monitoring. eGurkha, which was originally based in India, is now headquartered in Singapore with subsidiaries in India and USA. inCube has made an equity investment of S$7 million in eGurkha.

5 Mr Srinivas Ramanathan, CEO of eGurkha said, “inCube, with the strong Temasek brand name behind it, will contribute significantly towards our initial marketing efforts in Singapore and the rest of Asia. Once we have developed a strong foot hold in Asia, we can then penetrate the US market with our superior features and competitive pricing.”

6 Bijitec, into which inCube has invested S$2 million, specialises in software products that enable handwritten messages to be edited and transmitted via a variety of platforms, such as personal computers, PDAs and mobile phones, including via short messaging service (SMS) on mobile phones. Bijitec’s software is especially suited for ideographic languages such as Chinese, Japanese, Korean, and other Asian and Mid-Eastern languages. Bijitec has signed a co-operation agreement with ZTE, a leading telecommunications company listed on the Shenzhen stock exchange in China. Under the agreement, ZTE will incorporate Bijitec’s software in its new range of mobile phones to be launched in 2001.

7 Mr Dave Chen, CEO of Bijitec commented, “Our target customers are the telecommunications and IT companies. With inCube and Temasek Capital as our partner, we will be able to leverage on their strong global network of telecommunications and IT industry players. This is a great boost to our growth prospects.”

About Temasek Capital

8 Temasek Capital is the direct investment arm of Temasek Holdings. Temasek Capital seeks investment opportunities around the world. Its focus is on traditional private equity opportunities, as well as early to mid-stage technology and life sciences related investments. Temasek Capital aims to be the investor of choice for companies in Singapore and overseas.”

Read more: Temasek Holdings