Sovereign Wealth Fund Institute

According to the press release, “Since the first contribution to the Future Fund on 5 May 2006, the Fund has generated a return of 4.2% per annum.

The Future Fund’s return for the calendar year 2011 was 1.6%. The return for the quarter to December 2011 was minus 0.2% and for the first six months of the financial year it was
minus 3.1%.

David Murray, Chair of the Future Fund Board of Guardians said that significant stresses on the global financial system remained. “While there have been some positive signs in the US economy, underlying pressures remain and Europe continues to wrestle with debt-related challenges and the risk of recession. The prospect of a lengthy period of adjustment and subdued economic growth is generally apparent as signalled in global and domestic securities markets.

“In this environment, the Board continues to place a premium on patience and liquidity, ensuring that the portfolio is prudently positioned to take up attractive opportunities while avoiding excessive risk.

“Notwithstanding the current environment, the Future Fund was set up as a long term investment fund and the Fund’s statutory purpose and mandate leads the Board to continue to position the portfolio to achieve its long term objective,” said Mr Murray.”

Read more: Press Release

Wayne Swan

In recent news, Australian Treasurer Wayne Swan views that in the country’s current situation there is no need for a commodity-based sovereign wealth fund.

There are proponents in Australia that want a commodity-based sovereign fund. They feel that Australia is in a mining boom and a mining tax would discourage excess investment from occurring so quickly. Mining tax revenues could fill the coffers of the proposed sovereign investment entity to invest overseas.

On December 4, 2008, the Government of Australia signed the Convention on Cluster Munitions. The Convention on Cluster Munitions is an international treaty that prohibits the development, use, transfer, and stockpiling of cluster weapons. Australia’s Parliament has not yet passed the bill to ratify the international treaty.

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Tax considerations influence sovereign wealth fund investment behavior.  Australia does not want to deter passive foreign investment, especially in a challenging economic environment. Australia is already a favorite destination for many SWFs due to its vast natural resources, mature real estate market, and transparent capital markets.  The Government of Australia is contemplating tax exemptions for sovereign wealth funds that possess passive investments in Australian assets.

Most nations agree that passive governmental investment is a plus for the economy.  When sovereign investors engage in commercial activity, most of the time, they lose their exemption with that source of income.  Other Western nations have already adopted exemptions for sovereign investors.  Tax exemption laws for sovereign wealth funds (foreign governmental investors) vary by country.  In the United Kingdom, foreign governments have sovereign immunity from UK tax, except in the case of commercial income.  [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Australia and Italy are two occidental nations in the latest conversation on sovereign fund creation. In recent news, Italy wants to follow an identical path like France in creating a defensive sovereign wealth fund. In fact, the proposed state fund will most likely be modeled as a strategic investment fund to knock off potential takeovers by foreign entities. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

According to the press release, “TIAA-CREF and the Future Fund, an AUD$71 billion Australian sovereign wealth fund, today announced a new venture that will target co-ownership opportunities in real estate properties. As a first step, the Future Fund has taken an approximately 49 percent stake in 685 Third Avenue, which was previously purchased for USD$190 million by TIAA-CREF in 2010.

685 Third Avenue is a 33-story, 600,000 square foot office building in Midtown Manhattan between 43rd Street and 44th Street.  Currently vacant, the building is undergoing renovations including lobby and shop front improvements. TIAA-CREF and the Future Fund plan to pursue additional real estate opportunities over the next two years. Together, the companies will target core and core plus assets located in the CBD and Class A suburban regions of primary metropolitan areas in the US.

“TIAA-CREF is thrilled to partner with the Future Fund and complete our first transaction together. We believe 685 Third Avenue offers an excellent long-term investment opportunity and has the potential to generate significant value by attracting new tenants,” said Phil McAndrews, TIAA-CREF Managing Director and Head of Real Estate Portfolio Management. “We will continue to expand our real estate portfolio through targeted and strategic acquisitions.””

Read more: TIAA-CREF Press Release

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Goodman Group, a large Australian property that has received investment from the China Investment Corporation is leading a consortium to takeover ING Industrial Fund. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Mr Paul Costello, General Manager of the Future Fund Management Agency has informed the Board of his intention to leave the organisation.  The Chair of the Future Fund Board of Guardians, Mr David Murray, expressed his gratitude to Mr Costello for his role in guiding the Future Fund during its early development.

“Paul has played a critical role in building the Agency and recruiting a skilled team to develop and implement the investment program. These foundations have been laid while navigating the additional challenges of an unprecedented period of volatility in financial markets.”

Mr Costello said, “I am proud to have led the Agency through its start-up phase and to have brought together the people, capabilities and infrastructure for its future. As the organisation moves into a new phase the time is right for new leadership.”

Mr Costello joined the Agency as its first employee in November 2006. From holding an initial $18 billion in a cash account, the organisation today manages more than $87 billion of investments through partnerships with more than 60 investment managers globally. Mr Costello will remain in his role until around the end of the year to facilitate a smooth transition to the new leadership of the Agency. The Board of Guardians is conducting a search for a new General Manager, seeking expressions of interest from Australia and overseas.

Source: Australia Future Fund

According to the Sydney Morning Herald, “The taxpayer-backed Future Fund is turning its sights to the troubled British banking industry, investing in the country’s largest new lender to start up since the global financial crisis.  The fund joined the high-profile financiers Lord Rothschild and Sir Ronald Cohen in a deal to invest €450 million ($633 million) in Haymarket Financial, which will specialise in lending to medium-sized businesses, London’s Sunday Telegraph reported.

Investors have tipped a total of €1 billion into HayFin, as the new lender is known. The bank will target businesses worth between €100 million and €500 million.”

Read more: Sydney Morning Herald

Tony Day

Tony Day, a leader helping shape the Australian Future Fund’s investment strategy is finishing up his time at the sovereign wealth fund.  He was initially hired to assist building the fund’s investment capability.  The Future Fund recently is involved in a myriad of different asset classes. 
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Press release states, “Goodman Group (Goodman or the Group) announces that it has signed a Memorandum of Understanding (MOU) with the Langfang Municipal Government to participate in the development of a premier business and logistics hub for the greater Beijing-Tianjin area in northern China.”

Later on it reads, “Mr Goodman said, ‘This announcement, which has been made possible through the strength of our cooperation with the China Investment Corporation (CIC), marks an important step in the continued development of our Asian business and is a further indication of our growing and longterm commitment to the China market. Goodman expects to generate fee income over the life of the project and will also consider further investments for itself and its investment partners in the development of logistics and business park product at the site on a case by case basis.’”

read more: Goodman Press Release

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Australian Business reports, “In 2020, the Future Fund will be Australia’s biggest property landlord as the $67 billion listed property trust sector cedes its dominance to big sovereign wealth funds and super fund investors. Among other big trends, the property industry will be grappling with population growth, an ageing population, climate change and the challenge to supply infrastructure. In Australia, the annual population growth rate doubled in the past 10 years to 443,000 in the year to June. At the same time, the country attracted 290,000 migrants in net terms.

“I don’t think that will significantly ease up,” demographer Bernard Salt says.

This month, Prime Minister Kevin Rudd announced state governments and local councils will have to agree to better standards of planning in capital cities to qualify for future federal infrastructure funding to ensure they can properly handle growth, with the population set to reach 35 million by 2049. In the corporate world, analysts expect big superannuation funds and the increasingly dominant sovereign wealth funds to become landlords of much more property. The race is already on for Australian property companies to snag these big-ticket investors as partners. Lend Lease chief executive Steve McCann and his team are in the box seat as retail property fund manager for Australia’s $64 billion Future Fund with a joint bid to take over ING’s unlisted $1.4bn retail fund.”

read more: Australian Business

Nick Sherry

According to the Government of Australia – Assistant Treasurer, “The Assistant Treasurer, Senator Nick Sherry, has today released a consultation paper on the proposed changes to the income tax law to formalise the existing tax practice of exempting certain income earned by foreign governments.

“Currently, there are around 50 sovereign wealth funds around the world with approximately US$3.8 trillion under management and it’s expected that this will rise to around US$10 trillion by 2015,” said the Assistant Treasurer.

“The Rudd Government wants to provide certainty to these funds when they’re considering investing in Australia, and this measure will greatly assist in delivering that outcome.”

“The proposed changes will make Australia a more attractive destination for sovereign investment and will also contribute to the Government’s financial hub strategy.”

The consultation paper seeks comments on the broad legislative design principles of the proposed changes, including:

“We are strongly committed to close consultation with industry on tax measures. We will undertake a further consultation on the draft legislation, which is expected to be introduced in the first half of 2010,” said the Assistant Treasurer.”

read more: Government of Australia – Assistant Treasurer | Consultation Paper

Australia’s sovereign wealth fund will be investigated by the nation’s regulator over the sale of Telstra Corp. shares less than a month before a government threat to split the company, said Senator Steve Fielding. The Future Fund said it didn’t have access to private information.

The Australian Securities & Investments Commission will investigate whether the Future Fund was “tipped off” on the proposed separation of the country’s former phone monopoly, Fielding said in an e-mailed statement today.

The Future Fund, whose assets were worth A$64 billion ($59 billion) at Sept. 30, sold A$2.37 billion of Telstra shares on Aug. 20 under what it called a previously stated strategy of reducing its stake. On Sept. 15, the government said Telstra must separate its fixed-line assets from its consumer business or face curbs on mobile-services expansion.

read more: Bloomberg

Wall Street Journal reports that, “Australia will relax its screening of some foreign investment deals in a bid to improve the nation’s attractiveness as an investment destination, Treasurer Wayne Swan said. Private foreign investment, including deals by privately held and listed companies, in Australian firms valued at less than 219 million Australian dollars (US$184.6 million) will proceed without review. The move eliminates four lower monetary thresholds under which deals were subject to national-interest tests.”

read more: Wall Street Journal

Press release states, “CIC participation in Finance Facility CIC has committed to the Facility on the same terms as those announced to the market on 19 May 2009. To facilitate CIC’s participation, Macquarie Bank and its associates have sold down A$15m of their exposure which combined with CIC’s commitment of A$200m takes the final Facility size to A$485m. The Facility will not be increased in size beyond A$485m. Goodman and CIC have agreed to work in good faith towards a broader relationship between the two groups.

Greg Goodman, Group CEO of Goodman said: ‘We are very pleased with the support shown to the Group by CIC and are excited about the opportunity to partner with an institution of this calibre as we seek to grow our business globally. We view a relationship with CIC as highly strategic and believe that together we can capitalise on the significant opportunities created by current market conditions.’

The key terms of the A$485 million Facility are as follows:

9 month term expiring in February 2010, extendable for a further 15 months; and
Secured facility with covenants comparable to those in Goodman’s existing common
terms deed poll.

In conjunction with the Facility, additional Options will be granted over 255.3 million Goodman stapled securities with a two year term (Options). These additional Options are to be issued with a strike price of $0.40 and the lenders will share the two tranches of Options on a pro rata basis.

Approval from Australia’s Foreign Investment Review Board will be sought in respect of CIC’s participation in the transaction. The issue of options (apart from the first 120 million Options which were issued within placement capacity) will also be subject to security holder approval. In the event that the Options are not approved by security holders, the lenders under the Facility will be entitled to a cash amount from Goodman equivalent to the value of the Options as if they had been granted and were exercised. Further details of this grant will be distributed as part of a notice of extraordinary general meeting.”

read more: Goodman Press Release

NY Times reports, “the Chinese government’s largest investment ever in a Western company, a proposed $19.5 billion stake in the Australian-British mining giant Rio Tinto Group, collapsed early Friday, dealing a blow both to China’s global corporate ambitions and to its efforts to gain clout in the natural resources market.

The board of Rio Tinto announced the decision after meeting in London on Thursday, saying the company had ended the deal it struck in February to sell the stake to China’s state-owned Aluminum Corporation of China, also known as Chinalco.

The board said in a statement early Friday that it had ended the deal with Chinalco and would raise about $20 billion by issuing new stock and forming a joint venture with its longtime rival, the Australian mining giant BHP Billiton, the world’s largest mining company.”

read more: NY Times

Press release states “Today I approve the application by Hunan Valin Iron and Steel Group for up to a 17.55 per cent shareholding in Fortescue Metals Group, subject to the formal and strict undertakings I have sought from Hunan Valin, and which have also been agreed to by Fortescue Metals Group.

These undertakings are as follows:

Any person nominated by Hunan Valin to Fortescue’s board will comply with the Director’s Code of Conduct maintained by Fortescue;
Any person nominated by Hunan Valin to Fortescue’s board will submit a standing notice under the Corporations Act 2001 of their potential conflict of interest relating to Fortescue’s marketing, sales, customer profiles, price setting and cost structures for pricing and shipping; and
Hunan Valin and any person nominated by it to Fortescue’s board will comply with the information segregation arrangements agreed between Fortescue and Hunan Valin.

Hunan Valin will report to FIRB on its compliance with these undertakings. These undertakings ensure consistency with Australia’s national interest principles for investments by foreign government entities, which I set out in February 2008. They ensure the appropriate separation of Fortescue’s commercial operations and customer interests, and support the market-based development of Australia’s resources.

Penalties for non-compliance with these undertakings are contained in the Corporations Act 2001 and breaches of the Code of Conduct can lead to the director’s removal from the company board.

I note Fortescue’s involvement in negotiating the above arrangements, and its responsibility to its shareholders for enforcement of the company’s Directors’ Code of Conduct.

Under the proposal, Fortescue has agreed to issue new shares to Hunan Valin to raise funds for the next expansion phase of its iron ore mining operations in the Pilbara. Hunan Valin also intends to acquire some shares from other shareholders. Consistent with this approval and with its agreement with Fortescue, Hunan Valin will not hold above 17.55 per cent in total. It is on these bases that I have approved the acquisition under the Foreign Acquisitions and Takeovers Act 1975.”

read more: Press Release – Australia – Treasurer

According to The West Australian, “Amin Abdullah is the managing director of the Brunei Investment Agency, which paid $12.1 million for a 19 per cent stake in Patersons via subsidiary Nudhar Corporation last month.”

read more: The West Australian

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According to the Australian, “the Abu Dhabi Investment Authority, will take a $280 million stake in Lend Lease’s new office-tower project, Darling Walk, on the edge of the Sydney CBD as it expands its Australian property portfolio.”

read more: The Australian

Bloomberg writes that, “Lend Lease Corp. won backing from the Abu Dhabi Investment Authority for plans to build a A$600 million ($549 million) office tower at Sydney’s Darling Harbor, the Australian Financial Review reported, without saying where it got the information.”

read more: Bloomberg