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November 2012 Update on Quarterly SWF Direct Transactions

Direct sovereign wealth fund transactions continue to hold steady through quarter 2 of 2012. Major direct SWF transactions from 2007 to 2010 with regards to large-scale bank investments have skewed the growth trend. Infrastructure and real estate sectors have greatly carried direct SWF investments in 2012. Q4 2012 is left out in this graph.

Latest database statistics of 11/1/2012

Total Direct SWF Investment Activity by Quarter

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The Sovereign Wealth Fund Transaction Database is available online for database subscribers. Transaction data can now be accessed on a more frequent basis. The SWFTD now contains over 3,500 recorded transactions.

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Kuwait Increases Contribution to Future Generations Fund

The Kuwait Investment Authority (KIA) manages the assets of Kuwait’s Future Generations Fund (FGF). In 1976, Kuwait’s Crown Prince Jaber al-Ahmed al-Jaber al-Sabah who was the deputy emir of Kuwait issued a law creating the Future Generations Fund. The FGF is savings fund for future generations where assets are invested outside of Kuwait. Investment income is reinvested.

Kuwait had a record budget surplus due to high oil income and lower than predicted governmental expenditures. Due to several key factors, the government of Kuwait plans to increase contribution into the future fund from 10% to 25% this fiscal year. Kuwait’s cabinet notified the Kuwait Ministry of Finance to make the modification in the fiscal budget ending March 2013.

The Kuwait Investment Authority also manages the General Reserve Fund (GRF). This fund holds government assets such as participation in state-owned enterprises like the Kuwait Fund for Arab Economic Development and the Kuwait Petroleum Corporation.

Update – 2005 to 2011 SWFs Target Financials, Real Estate and Infrastructure

The long-term trend for direct sovereign wealth fund investment by sector is in. Starting in 2005 until the end of 2011, the financial sector is the most targeted for direct sovereign wealth fund investment. We calculate this from our most recent database statistic of US$ 164.91 billion ending calendar year 2011. The financial sector is followed by the real estate sector’s US$ 54.49 billion. Energy and infrastructure and utilities sectors follow closely behind.

Latest database statistics of 8/28/2012

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Top sectors for sovereign wealth fund direct investment inflows 2005 to 2011

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Billions USD

The Sovereign Wealth Fund Transaction Database is now available online for subscribers. Transaction data can now be accessed on a more frequent basis. The SWFTD now contains over 3,500 recorded transactions.

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  • Time-Series Charts, Data Tables and Graphs
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Access Online Website – SWFTD

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Latest demo video: Sovereign Wealth Fund Transaction Database

North Dakota is Stuffing its Coffers

North DakotaThe U.S. state of North Dakota gathered around US$ 1.7 billion in oil tax revenue in the past fiscal year. The energy-producing state has beaten their original forecast February 2011 and is on track to collect between US$ 3.5 billion and US$ 4 billion in the entire 2011 to 2013 biennium.

The February 2011 forecast predicted North Dakota would collect $2.041 billion in oil extraction and gross production taxes during the entire 2011 to 2013 biennium. Increases in oil production played a major role in the growth of tax revenues. To analyze a striking comparison, in the entire 2001 to 2003 biennium, North Dakota collected only US$ 119.5 million in oil tax revenue. Oil firms pay a 6.5% extraction tax and a 5% gross production tax to the state of North Dakota. The North Dakota Legacy Fund is one of the beneficiaries from oil extraction tax revenue. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Kuwait Posts Record Budget Surplus for FY 2011-2012

The oil-rich state of Kuwait has posted a historical budget surplus of 13.2 billion Kuwaiti Dinars (US$ 47.5 billion) for fiscal year 2011 to 2012. The fiscal year ended March 31, 2012. Increases in the global price of oil, coupled with greater output contributed to the fiscal surplus. The price of a barrel of oil is a major factor in the probability of a fiscal surplus for Kuwait. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Tanzania Looks to Creating a Sovereign Wealth Fund

Jakaya Kikwete

Jakaya Kikwete

The east African country of Tanzania is on pace to become the next sub-Saharan nation that plans to set up a sovereign wealth fund based on natural resources. Currently, Sub-Saharan sovereign funds make up a small portion of the total outstanding sovereign fund investor class by assets under management.

The proposed Tanzanian sovereign fund will be funded by future earnings derived from large gas deposits in the southern region of the country, along the Indian Ocean coast. In June 2012, gas reserve estimates tripled by offshore exploration discoveries by ExxonMobil, Statoil, BG Group, and Ophir Energy.

Tanzania is transforming into an energy hub in the region due to natural gas discoveries.

In September, the government of Tanzania signed a US$ 1.2 billion loan agreement with China for the construction of a pipeline. The Tanzanian government expects the completion of the 532 kilometer gas pipeline project that will connect the south to Dar es Salaam.

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Nigeria’s Sovereign Wealth Chugs Forward

Nigeria’s sovereign wealth funds have been a contentious political issue for the country. The direction of natural resource revenue has pitted the Nigerian Governors Forum against the Nigerian federal government. Nigeria is sub-Saharan Africa’s largest crude oil exporter. The one billion dollar authority plans to start operations in the coming months. The Nigerian Sovereign Investment Authority (NISA) is still recruiting the fund’s management team.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Temasek Plans Dual Tranche Bond Offering

Temasek HoldingsSingapore’s Temasek Holdings is planning a dual tranche bond offering through its wholly-owned subsidiary, Temasek Financial (I) Limited. The bonds will be issued by Temasek Financial (I) Limited under their US$ 10 billion Guaranteed Global Medium Term Note Program and will be fully and unconditionally guaranteed by Temasek Holdings. The offering will be comprised of a benchmark 10.5-year and 30-year bond.

Standard & Poor’s and Moody’s have rated the bonds AAA.

Possible Future for a Peruvian 10 Billion SWF

Luis Miguel Castilla

Luis Miguel Castilla

The Latin American country of Peru is the globe’s second largest silver, copper, and zinc producer. Regards to gold producing Peru ranks number six. 60% of Peru’s exports come from mining activities. 20% of Peru’s fiscal revenues are derived from mineral reserves. It is fair to say commodity prices have a significant impact on Peru’s economy and national budget.

Peru’s southern neighbor Chile has two sovereign wealth funds, one is a stabilization fund. Currently, Peru only has a fiscal stabilization fund.

Government officials are debating the requirements for establishing a sovereign wealth fund in Peru. The proposed fund could be US$ 10 billion in size. Peru’s Minister of Economy and Finance Luis Miguel Castilla wants to see stabilization in the global commodity markets before they can finalize plans. Like other commodity-based sovereign funds, proceeds from mineral exports would be deposited into the sovereign wealth fund. The sovereign fund would invest the money overseas. Peru’s international reserves have doubled since the onslaught of the global financial crisis to around US$ 60 billion.

Since 2002, Peru has been able to pay down public debt. Peru’s Fiscal Responsibility and Transparency Law (FRTL) also called Ley de Responsabilidad y Transparencia Fiscal has been effective in helping the country reduce its debt. Public sector gross debt was reduced from 44% of GDP in 2004 to 24% of GDP in 2010.

Peru’s Fiscal Stabilization Fund
Peru has a fiscal stabilization fund (FEF). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Iran’s Oil Ministry Taps 14 Billion from National Development Fund

In July, two days after the European Union embargo on Iranian oil took effect; Iranian Oil Minister Rostam Qasemi signed a memorandum of understanding (MoU). The MoU entailed the oil ministry to tap Iran’s National Development Fund for $14 billion which currently the fund was at $35 billion. Iranian President Mahmoud Ahmadinejad has stated the National Development Fund’s assets would hit $55 billion by the end of the current calendar year. Iran’s National Development Fund is a successor to the Iran Oil Stabilization Fund. Iran transfers 20% of oil revenues to the National Development Fund. The Western economic sanctions are forcing Iran to shut off wells and sink production levels.

Minister Qasemi said the move “indicates that the country has enough financial resources to fund projects.’

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AIMCo Posts 7.9% Gross Return for the Latest Fiscal Year

The Alberta Investment Management Corp (AIMCo) which manages the Alberta Heritage Savings Trust Fund and other funds posted a 7.4% return (net of fees) on investments for the latest reported fiscal year. AIMCo performed well relative to its peers, the CPP Investment Board returned 6.6% for fiscal year 2012. Two major contributing investment return factors includes the 22.8% return in real estate holdings and AIMCo’s long bonds portfolio that returned 17%. AIMCo manages around $7 billion in real assets.

AIMCo was established in January 2008 and currently manages 12 government funds, 8 pensions, and 6 endowments.

AIMCo has large real estate exposure in Canadian properties, especially in Ontario and Alberta.

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Sovereign Wealth Fund Direct Transactions Update June 2012

Globally, sovereign wealth funds have been diversifying into new geographies and sectors. According to the Sovereign Wealth Fund Direct Transaction Database (SWFTD), around US$ 29.29 billion (trailing four quarters starting at Q1 Year 2012) has been directly invested in the financial sector by sovereign funds. In fact, financial sector direct investments consisted of 36% of total expenditure of all SWF direct transactions(not investment frequency). In that time period, sovereign wealth funds participated in several major investments in European and Asian financial institutions. Another major trend is the growth of sovereign wealth funds directly investing in institutional real estate. Trailing four quarters, starting from Q1 Y2012, direct real estate investments totaled US$ 9.55 billion.

In calendar year 2011, sovereign wealth funds made 612 significant direct investments, valued at US$ 89.2 billion, according to data from the Sovereign Wealth Fund Transaction Database. A 12.1% increase in transaction value from 2010.

This is followed by US$ 9.488 billion in the energy sector. Developed infrastructure and energy assets were of mounting importance to sovereign funds. In addition, we acknowledge increased real estate direct transactions by sovereign wealth funds this year, but total amounts are undercounted due to the non-transparent market.

The Sovereign Wealth Fund Transaction Database is now available online for subscribers. Transaction data can now be accessed on a more frequent basis. The SWFTD now contains over 3,000 recorded transactions.

  • Online, Convenient Access
  • Access Top Ten Lists
  • Time-Series Charts, Data Tables and Graphs
  • Filter Searches
  • Data Guides

Access Online Website – SWFTD

See the Video

Latest demo video: Sovereign Wealth Fund Transaction Database

Invest AD Establishes Operations in Morocco

Invest AD which is owned by the Abu Dhabi Investment Council (ADIC) has opened up an office in Casablanca Finance City. Another organization, AD Capital, an arm of Abu Dhabi’s National Holding has opened up an office there as well. Invest AD is active in investing in Africa and views the city as a prospective gateway into the Greater Northwest Africa. Increasingly, institutional investors who allocate to Africa want to invest with asset managers who have local expertise.

Casablanca, a city in Morocco, is trying to lure financial firms to a 100 plus hectare business district in hopes of stimulating a regional finance center. Established in 2010, Casablanca Finance City has attracted firms like Clifford Chance, Boston Consulting Group, and McKinsey. The Moroccan Financial Board is responsible for managing Casablanca Finance City.

Nazem Fawwaz Al Kudsi, Chief Executive Officer at Invest A.D., said in a recent press release:
“Global institutional investors are looking to deploy more capital in Africa, and want asset managers with on-the-ground expertise. We believe Casablanca is an excellent base in Africa because of its geographical position, stability and its fast developing ecosystem of international financial institutions.”

Speaking of Capital Controls in Europe

Nations and states that fear economic disturbances may be tempted to impose controls on international capital flows. Continental Europe is facing a credit and banking crisis. Recently, European officials hinted unleashing a series of capital controls across Europe. If controls are implemented they will most likely target consumers, meaning limiting ATM withdrawals and bank transfers. If this does occur, what effect does this have on institutional investors?

In fact, it has been reported that the European Commission has been providing legal advice to countries who are considering leaving the euro. Institutional investors must come to realize that investing in distressed current account deficit markets bears a certain level of risk.

If governments are willing to impose capital controls on its citizens, how far off does that impact institutional investors?

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Sovereign Wealth Funds Fear Spanish Bonds

Recently, the Abu Dhabi Investment Authority (ADIA) removed Spain from its fixed income benchmark index for Europe. In other words, ADIA will not be allocating capital to Spanish bonds any time soon. From Norges Bank Investment Management’s website, they currently hold about US$ 3 billion worth of Spanish government debt. Sovereign wealth funds like the China Investment Corporation believe that the Euro crisis is deepening and that the Eurozone may break up. In fact, the CIC views that there is too much risk and too little return in Europe’s public markets. Instead they will focus more on private equity, infrastructure, and other direct investments.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Slovenia to Consolidate State-Owned Assets into Proposed SWF

Slovenia is planning to consolidate state-owned assets into a sovereign wealth fund. By merging the different agencies, Slovenia hopes to enhance revenue and improve organizational efficiency. The five agencies manage assets of more than €10 billion. Over time, the Government of Slovenia will decide which assets to dispose of. The proposed sovereign fund’s profits will be used to finance pensions and the national budget.

Once a part of Yugoslavia, Slovenia has emerged as an independent nation. In 2007, the country became a Eurozone member and in 2010 joined the OECD. Austerity measures across Europe have negatively affected the Slovenian economy.

The country is highly dependent on exporting to other EU countries.

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Sovereign Investors and the Shifting Paradigm of Disintermediation

Sovereign wealth funds and other long-term public investors are relying less on Wall Street and other major financial institutions for unique deals, special situations, and now even treasury auctions. The People’s Bank of China can participate in treasury auctions without placing bids through primary dealers. Financial power is shifting from the West to the East and in the next decade, it will begin to shift South.

The US$ 5 trillion investor class is poaching investment executives from leading banks and investment managers. Public investors like the Ontario Municipal Employees Retirement System (OMERS) have their own private equity deal team. Pulling this off requires long-term serious commitments from board committees, proper long-term incentive programs, and sufficient financial resources.

Increasingly, sovereign wealth funds are being approached by companies for long-term capital. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Politicians Mulling Temasek-Style Hong Kong SWF

trees_sovereign_wealthThere is talk among politicians that Hong Kong is thinking of creating a sovereign wealth fund that is a strategic sovereign wealth fund similar to Singapore’s Temasek Holdings. The fund could assist in bringing stability to the Hong Kong market and help with the government’s long-term investment plans.

Sovereign funding could stem from government budget surpluses, though some money could come from the HKMA’s exchange fund. In 2007, the idea gained some traction but was shot down since the exchange fund already served the purpose. At the moment, there is a very low probability of this even happening.

Kuwait Hopes to Change FDI Laws to Lure Investors

Kuwait is the number four oil producer in the Organization of Petroleum Exporting Countries (OPEC). In addition, compared to other members of the Gulf Cooperation Council (GCC) it ranks near the bottom in foreign direct investment (FDI). Other countries have been large recipients of FDI which has helped further spur their domestic development, especially in the energy extraction sector. Saudi Arabia is number one, followed by the United Arab Emirates in terms of FDI in the GCC.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Sovereign Wealth Funds Cross 5 Trillion Dollar Barrier

The investor class of sovereign wealth funds has now crossed the US$ 5 trillion mark. Sovereign wealth fund assets are now at US$ 5.004 trillion. Sovereign wealth funds as an investor class continues to grow due to a variety of factors including investment performance, resource tax transfers and the proliferation of new sovereign funds.

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