Sovereign and Public Investor Topics: Asset Allocation and Policy
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$11 Billion at Stake as External Managers Line Up for Libya

The US$ 66 billion Libyan Investment Authority (LIA) is looking to allocate US$ 11 billion to external fund managers, nearly 17% of total assets. Behind this, is the LIA pressing suits against Societe Generale and Goldman Sachs in London. Fund management companies are analyzing the potential risks of doing business in Libya. However, to be realistic, there will be no shortage of money managers wanting to manage assets and charge fees over an US$ 11 billion pool of money.

What Types of External Managers Will Receive Allocations?

The LIA will seek fund managers with low fees and transparent investment processes. The majority of the allocations will go to fixed income and public equity managers. Smart beta strategies and passive investing are likely mandates the LIA will take out. The LIA are also seeking consultants to assist in the implementation.

The sovereign wealth fund is going under a major restructuring plan, post-Gaddafi. According to LIA Chairman Abdulmagid Breish, more than 50% of LIA’s current assets are in 550 companies that the SWF currently owns.

See Libyan Investment Authority profile

3 Separate Funds

The LIA is planning to set up three funds with different purposes. This is similar to how several of Africa’s sovereign wealth funds have been setup. There is usually a fiscal stabilization fund, savings fund and a strategic development focused-fund.

Fund Names:

    Budget Stabilization Fund (Fiscal Stabilization)
    Future Generation Fund (Savings)
    Local Development Fund (Strategic Development Domestic)

Singapore’s Temasek Takes Sub-Saharan Africa Energy Bet

Singapore’s Temasek Holdings is moving into the sub-Saharan African natural resource market. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Singapore’s GIC Invests Around $63 Million in Intelligent Energy

Singapore’s GIC Private Limited invested around US$ 63 million in Loughborough-based Intelligent Energy Holdings plc, an international power technology company. The Singaporean sovereign wealth fund will own a new issue of 15,129,468 ordinary shares, representing 10% of the company. Intelligent Energy develops fuel cell power systems for a number of markets such as consumer electronics, automotive and stationary power markets. Intelligent Energy is founded on Loughborough University research.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

New Zealand Superannuation Commits Up to $250 Million in KKR Energy Investments

natural gas processing site during sunset

The New Zealand Superannuation Fund (NZSF) is committing up to US$ 250 million toward North American oil and gas opportunities with private equity firm KKR. The mandate will target upstream oil and natural gas production, midstream infrastructure (pipelines), downstream facilities and service companies to the energy sector. KKR is a buyout firm managed by Henry Kravis and George Roberts.

The Asian sovereign funds, CIC and KIC, have backed away from their Canadian shale investments.

Where is the money going?

Here’s Why Singapore’s GIC is Expanding Investments in Brazil

brasilDespite headwinds of a presidential election, higher inflation, and the possibility of deep budget cuts and increased taxes, institutional investors like sovereign wealth funds and pensions are betting on Brazil’s long-term economic viability. For Latin America, sovereign funds are not terrified by short-term volatility. Pensions and sovereign wealth funds center on consumer-oriented companies, counting on middle class expansion. According to World Bank data, in 2005, the poverty headcount ratio in Brazil was 30.8%. In 2009, the ratio lowered to 21.4%. Attractive sectors for public pensions and sovereign funds in Brazil run from, infrastructure, real estate, telecommunications and consumer goods like food.

Lim emphasized opportunities in the larger emerging market countries, advocating the proliferation of supply-side trends.

Being Selective – National Champions

Public asset owners can be selective in their investments, picking national champions in emerging markets. For example, recently Singapore’s GIC Private Limited boosted its stake in BRF to 4.4% from 3.8%, a São Paulo-based food processor. BRF, also known as Brasil Foods, was created by the merger of Perdigão and Sadia and is the world’s 10th biggest food company. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

New Zealand Superannuation Fund Invests Additional $50 Million into Bloom Energy

The New Zealand Superannuation Fund (NZSF) boosted its stake in Sunnyvale-based Bloom Energy, investing an additional US$ 50 million. In May 2013, the NZSF invested US$ 50 million into the fuel cell power generating company.

Bloom Energy is the maker of the “Bloom Box”, a solid oxide fuel cell server. These servers provide electricity without the use of an electric grid. Bloom’s products are fueled by natural gas.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

How West Virginia Learned the Cold Truth about Resource Abundance and Wealth

West Virginia - Jeff Kessler (D) - State Senator

West Virginia – Jeff Kessler (D) – State Senator

Having long been rattled by the booms and busts of the mining industry, the state of West Virginia learned a hard lesson about the importance of saving after years of seeing wealth flow out of state, leaving once resource rich areas in poverty. In anticipation of a shale gas boom from drilling the Marcellus Formation, the West Virginia State Senate proposed and passed a bill to establish a Future Fund to house oil and natural gas tax revenues.

Senate Bill 461 originally called for establishment of a Future Fund to pool 25 percent of oil and gas severance tax revenue in excess of US$ 175 million. With revenues forecasted to hit US$ 176 million in fiscal year 2015-2016, state legislators chose the US$ 175 million benchmark to allow the government more oil and gas proceeds to aid in balancing the state budget. The bill, proposed by WV Senate president Jeff Kessler (D), reached the floor of the state House of Delegates after passing the House Judiciary Committee on March 3rd and the House Finance Committee on March 5th.

It now goes to the Governor Earl Ray Tomblin to sign.

The House Finance Committee axed the US$ 175 million milestone, calling instead for the future fund to reap 3 percent of all gas, oil, coal, sandstone and limestone severance tax revenues which would have been deposited in the state’s general fund. Moreover, the committee amended the bill to freeze funding of the investment pool during times of financial stress if the state needs additional funds or has to slash spending. Finally, it capped the amount lawmakers can draw from the fund in a given year at the average interest income of the preceding five budget cycles.

A proposed constitutional amendment accompanies the bill, barring legislators from tapping the fund until 2020 and setting limits on where interest and investment income can be spent. If this joint resolution is passed by voters in November, spending of fund interest and income will be restricted to five general areas:

  • Workforce development and education enhancement
  • Infrastructure projects
  • Economic development and diversification
  • Tax relief measures for state citizens and businesses
  • Cultural and historical improvements/preservation

Passes in WV House and Senate

The House of Delegates amended Senate Bill 46. Both the Senate and House have approved the changes to the Future Fund bill. It now goes to the Governor Earl Ray Tomblin to sign.

NatGas Revenues to Flow into PNG Sovereign Wealth Fund

PNG Treasurer Don Polye

PNG Treasurer Don Polye

Liquefied Natural Gas (LNG) will drive growth in Papua New Guinea (PNG) this year with the ExxonMobil-led PNG-LNG Project on track to begin exporting in the second half of 2014. The PNG Sovereign Wealth Fund will be the sole beneficiary of the government’s natural resource windfall, PNG Treasury Minister Don Polye has reportedly declared.

The US$ 19 billion PNG-LNG project has gas production and processing facilities spread throughout the Hela, Southern Highlands and Western provinces.

“All proceeds of LNG will go directly into the SWF and I mean 100% of it,” Polye said, according to Post-Courier. “The first sale of the LNG will begin this year and the projected growth of the economy will be roughly approximately valued around K52 billion (US$20 billion) when the first proceeds of the sales of LNG start coming in.”

In November 2010, the PNG government wrote provisions for a sovereign wealth fund into its 2011 budget. The sovereign fund is intended to rein in the effects of historically volatile mineral and petroleum revenues on the economy and government budget as well as to provide for long-run economic development and social programs. According to Post-Courier, Minister Polye said the sovereign wealth fund will be finalized in May at the next parliament session. As for the sovereign fund’s asset allocation policy, Polye is eyeing international markets.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Update on Vitol and ADIC Bid for Shell’s Australian Downstream Assets

Rotterdam-based Vitol SA and the Abu Dhabi Investment Council seem to have won the bid for Shell’s Geelong oil refinery and local service station network in Australia. The transaction amount is A$ 2.4 billion. The investor group beat out the consortium consisting of Glencore Xstrata and Macquarie Group.

Shell Australia listed the Geelong refinery for sale back in April 2012.

European Investment Bank Signs Loan Agreement to Finance El Shabab Plant

On February 6, 2014, the European Investment Bank (EIB) signed a loan agreement in the amount of €205 million (US$ 279.6 million) to finance the El Shabab power plant project in Egypt. The project will be co-financed by the European Bank for Reconstruction and Development (EBRD) and the Saudi Fund for Development (SFD). Funds will be used to convert an open-cycle power plant to a combined-cycle gas plant. The conversion is expected to increase efficiency and output by 50%.

EIB Vice-President Philippe de Fontaine Vive took part in the signing ceremony. “Our aim is to support the new Egypt’s social and economic transition by financing projects encouraging growth and employment,” he said at the event. “We aim to contribute to the improvement of the daily life of the Egyptian people and to the building of a future for the younger generation.”

The EIB has approved €1 billion (US$ 1.36 billion) in loans for projects in Egypt in the last two years, and has signed €637 million (US$ 868.7 million) “so far in key economic and social sectors.”

Also present at the signing ceremony was Mr. Nidal E. Assar, Deputy Governor of the Central Bank of Egypt.

According to the EIB’s website, in 2012 it lent out €52 billion (US$ 71 billion), €7 billion of which was lent out for projects outside the European Union.

Canadian Public Investors Have Big Week in Energy Infrastructure

On January 31, the Canada Pension Plan Investment Board (CPPIB) acquired a 10.4% stake in Transportadora de Gas del Perú S.A. (TgP) from Graña y Montero for US$ 200 million. Graña y Montero is the biggest engineering and construction company in Peru. Graña y Montero also sold a 0.91% interest to Corporación Financiera de Inversiones for US$ 17.3 million. After both deals, Graña y Montero will hold a 1.64% equity stake in TgP. In November 2013, Graña y Montero bought the 12.38% stake in TgP from Argentina-based Pluspetrol Resource Corporation.

In addition, Spanish energy giant Repsol SA sold their 10% stake in TgP to Madrid-based Enagás SA for around US$ 219 million. Enagás SA also entered into a deal to acquire U.S.-based Hunt Oil’s stake in TgP for nearly US$ 272 million.

TgP is the largest mover of natural gas and natural gas liquids in Peru. In fact, in 2012, the asset delivered nearly 95% of Peru’s total volume of natural gas from Blocks 88 and 56 of the Camisea gas fields. Located in the Peruvian Amazon, the Camisea gas fields are near the Urubamba River. Natural gas extraction in the area isn’t without controversy as the gas fields are near the Nahua-Nanti Reserve.

The CPPIB is keen on Latin American energy infrastructure. TgP’s clients include the largest power generators, natural gas distributors and industrial firms in Peru.

Borealis Infrastructure Acquires Interest in Bruce Power B

On the same day as CPPIB’s stake investment in TgP, Borealis Infrastructure, the infrastructure arm of OMERS, signed a deal to acquire 31.6% of Bruce Power B for $450 million from Cameco Corporation, a Uranium miner. Bruce B operates 4 of 8 reactors in the world’s large nuclear generating facility in Tiverton, Ontario – generating 30% of Ontario’s 2013 electricity. Borealis’ ownership in Bruce Power B post-deal rises to 56.1%. Other investors in Bruce Power include: TransCanada Corporation, the Power Workers’ Union and the Society of Energy Professionals. Canada’s largest public-private partnership is Bruce Power – the assets remained owned by the government of Ontario.

Michael Rolland, president and CEO of Borealis, commented in a press release, “Bruce Power is an investment that continues to fit with our long-term strategy to invest in core, large-scale and high-quality infrastructure assets. It also plays a critical role in meeting the supply needs of the province of Ontario.”

CIBC World Markets Inc. acted as a financial advisor to Cameco Corporation.

Suitors Shrink for Shell’s Australian Energy Assets

Available suitors for Shell’s Australian oil assets are shrinking in a deal that could be worth US$ 3 billion. TPG Capital, Ontario Teachers’ Pension Plan (OTPP) and the Kuwait Investment Authority exited from the bid. This leaves Macquarie Group and Glencore Xstrata as one group and a consortium composing of Rotterdam-based Vitol SA and the Abu Dhabi Investment Council competing for Royal Dutch Shell’s refining and retail business. Assets include the Geelong refinery based in Victoria, import terminals and a network of 900-strong service stations.

Shell’s chief executive Ben van Beurden said in a statement the company is “making hard choices in our worldwide portfolio to improve Shell’s capital efficiency.”

The sales process is being managed by Bank of America Merrill Lynch.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Mubadala and Shell Swap Equity Interest in Exploration Blocks

Mubadala Petroleum and Royal Dutch Shell have signed an equity swap agreement that will transfer 20% equity interests in two offshore exploration blocks offshore Malaysia.

The two blocks in question are Block 2B and Block SK320. Block SK320 is operated by Mubadala Petroleum; it has a 75% interest in the block. Petronas Carigali Sdn Bhd has a 25% interest. Block 2B is operated by Shell; it has an 85% interest in the block. Petronas Carigali has the remaining 15% interest.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Georgia Partnership Fund Starts Construction on Thermal Power Plant

The US$ 4.3 billion Georgian Partnership Fund initiated construction on a 230 MW natural gas combined cycle thermal power plant 39 km south of the nation’s capital on January 17, 2014. The plant is financed jointly through the Partnership Fund and its wholly owned state-owned enterprise Georgian Oil and Gas Corporation (GOGC). The power plant is expected to be fully operational by 2015. It will generate 1.8 billion KW annually. Turkish energy company Çalık Enerji will be constructing the plant. The total cost of constructing the plant is placed at US$ 220 million.

Several leaders were present at the groundbreaking ceremony, including Irakli Gharibashvili, Prime Minister of Georgia; Kakhi Kaladze, Vice-Premier and Energy Minister of Georgia; Ahmet Çalık, Head of Çalık Holding and Irakli Kovzanadze, Executive Director of the Partnership Fund.

In a prior interview with the Sovereign Wealth Fund Institute, Mr. Kovzanadze noted a concerted effort to increase energy infrastructure saying, “For the past few years Georgia has been a net exporter of electricity; however, it required import and thermal power in the winter. As consumption is growing and the requirements for import or additional capacities are increasing, several new projects have been commenced.”

For the country’s prime minister, energy infrastructure is more than a step in bolstering their energy trade, but also a serious imperative for national security. “For any country and especially for Georgia, energy independence and energy security is very vital which is directly connected with the security of the whole country,” said Gharibashvili in a statement.

Currently, the country is 75% dependent on foreign energy, according to Energy Minister Kaladze. But “the country has everything to strengthen its energy independence,” he said.

Mubadala Petroleum Awards EPCIC Contract to Nippon Steel and Sumikin Engineering

Mubadala Petroleum, a wholly owned subsidiary of Mubadala Development Company, announced that it has awarded a platform engineering, procurement, construction, installation and commissioning (EPCIC) contract to Nippon Steel and Sumikin Engineering Co. Ltd. (NSSE). The EPCIC contract covers the Nong Yao oil field development in Block G11/48 in the Gulf of Thailand.

In August 2013, the Sovereign Wealth Fund Institute reported that Mubadala Petroleum had decided to develop Block G11/48, but was still in negotiations regarding the contract for platform construction. The location of the concession is 165 km offshore in depths of 75 meters.

When questioned on the oil production from the facility, a spokesperson from Mubadala responded immediately via email stating, “peak rates are expected to reach approximately 10,000 barrels of oil per day (bopd) within a few months of first oil.” But the development which, “consists of a Wellhead Processing platform (WPP) and Wellhead Platform (WHP) with interconnecting pipelines to a Floating Storage and Offloading vessel (FSO) will be capable of producing up to 15,000 bopd.

Mubadala Petroleum, the operator of the concession, holds a joint interest in the concession with KrisEnergy Ltd. KrisEnergy claims a 25% working interest, with the rest being held by Mubadala Petroleum.

“We are pleased to be making headway,” said Chris Gibson-Robinson, KrisEnergy’s Director of Exploration & Production of the Nong Yao development. “We declared [sic] final investment decision in August last year and preliminary fabrication work commenced in November.”

Li Ka-shing’s Power Assets to IPO HK Electric

Hong Kong Billionaire Li Ka-shing controls Power Assets Holdings Ltd, an investment entity that invests in power and utility-related businesses. The business magnate is seeking to sell local regulated assets in favor of overseas regulated assets in Australia, Europe and parts of Southeast Asia.

Li is seeking to spin off Hongkong Electric Company, Hong Kong’s number #2 power supplier, into a single-investment trust. Having HK Electric structured as an investment trust will attempt to soothe investors since excess cash is pledged to be paid out in dividends. Starting operations in 1890, Hongkong Electric Company is an electricity duopoly. Li reduced the offering size of HK Electric, presenting a 50.1% stake versus the previously idea of 70%. This puts HK Electric’s offering at HK$ 27.91 billion.

Cornerstone Investors
Government-owned State Grid Corporation of China, China’s largest power distributor, will invest HK$ 10 billion for an 18% stake in HK Electric. In addition, the Oman Investment Fund will acquire a stake for HK$ 387.5 million.

Joint sponsors for the HK Electric listing include HSBC Holdings Plc and Goldman Sachs Group Inc.

China Investment Corp May Restructure North American Operations

torontoskyAppointed in January 2011 as the chief representative of the China Investment Corporation’s (CIC) Toronto office, Felix P. Chee is leaving the Chinese sovereign fund at the end of December. When joining the CIC, Chee perceived the job opportunity as working for a US$ 200 billion startup, tactically to help deploy cash to investments and grow returns for the sovereign wealth fund. Before the CIC, he was an investment executive at Manulife Financial Corporation. Initially, the CIC opened up an office in Toronto to strategically take advantage of Canada’s booming energy and resource sectors – evening relocating Chee and Winston Wenyan Ma to Toronto. The CIC has experienced tremendous asset growth. It is nearing US$ 600 billion in assets (see sovereign fund rankings).

Another major development is Mexico passing legislation to begin the process of opening up their heavily guarded energy sector.

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

GIC Private Limited Subscribes to Green Dragon Gas Convertible

Green Dragon Gas Ltd., a producer and distributor of Coal Bed Methane (CBM) to China, launched a convertible bond facility up to US$ 100 million. The first tranche of US$ 35 million has been subscribed by Singapore’s GIC Private Limited. The last tranche is expected to be issued on or before January 31, 2014.

The convertible bond is unsecured with a 7 percent coupon. The bond is due December 2015 and is convertible into ordinary shares at a conversion price of US$ 6.06 per share.
The tranche capital will be used for Green Dragon’s 2014 LiFaBriC drilling plan and working capital needs.

From the press release, Jason Triplitt, head of European equities, GIC Asset Management, stated: “GIC sees long term value in the Coal Bed Methane (CBM) industry in China, GDG’s extraction methodologies, gas resources and the further development of its licence blocks. We look forward to our investment into the company benefitting from its continued growth and crystallization of value after a decade of effort and experiences in the China CBM sector.”

On December 12, Green Dragon entered into a binding Memorandum of Undersatnding (MoU) with Petrochina Company Ltd. confirming its participating interests in the Chengzhuang block, a block included within the Shizhuang South Production Sharing Contract.

National Welfare Fund Receives Request from Russian Ministry of Energy

The capital requests are coming in from the government. The Russian Ministry of Energy has requested 35 billion roubles (US$ 1.055 billion) from the National Welfare Fund (NWF), one of Russia’s sovereign funds. Russia strategically desires to develop energy infrastructure in Russia’s Far East. The capital would allow RusHydro, a Russian utility company, greater flexibility to advance the Far Eastern power grid. As of March 31, 2013, the government of Russia owns 60.5% of total voting ordinary shares in RusHydro.

In 2012, the government of Russia augmented RusHydro’s capitalization by 50 billion roubles. This capital was for constructing four heat-generation facilities in Russia’s Far East.

New Zealand Superannuation Fund Embraces Green Streak

Matt Whineray

Matt Whineray

Sovereign wealth funds have an eye for promising renewable energy companies – some successful, some not. The New Zealand Superannuation Fund (NZSF) invested US$ 55 million in Ogin Inc. Formerly known as FloDesign Wind Turbine Corporation, Massachusetts-based Ogin is a developer of wind turbines that utilizes aerospace technology. In its infancy, the startup received funding from the U.S. Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E). The US$ 8.3 million grant from ARPA-E helped with the turbine’s development.

Ogin has a difficult road ahead of them – balancing product execution with regulatory risk. In addition, potent incumbents like General Electric or Vestas are the key actors in the wind turbine industry. General Electric constructs mega wind turbines for massive wind farms. Taking a different approach, Ogin is focusing on building smaller wind turbines and placing them locally, near residential areas and campuses.

In a press release, Matt Whineray, General Manager of Investments for the NZSF stated, “We look forward to working with Ogin as it further develops its products and markets, and as it redevelops existing wind farms using its new turbines.”

Before the investment in Ogin, the NZSF invested US$ 50 million in fuel cell startup Bloom Energy. Known for the Bloom Box, Bloom Energy is backed by a laundry list of Silicon Valley venture capitalists like NEA and Kleiner Perkins Caufield & Byers. Bloom Boxes use solid oxide fuel cell technology to create energy and are used by data centers operated by Apple, Google and Microsoft. In late November, Bloom Energy hit a milestone, installing its first fuel cells in Fukuoka, Japan.