Malaysia’s Khazanah Nasional Berhad invested approximately US$ 40 million for a small interest in Mumbai-based Ipca Laboratories Ltd. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Alaska Permanent Fund Corporation (APFC) has hired four equity managers to handle new international equity mandates. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Citigroup was part of a group of U.S. lenders being investigated by the U.S. Department of Justice (DOJ) for allegedly misrepresenting the quality of mortgage-backed securities sold prior to 2008. Institutional investors such as pensions and sovereign wealth funds invested in these instruments, either directly or through external fund managers. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The second quarter results for 2014 on sovereign wealth fund transparency have now been released to the public. The Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell. Some new sovereign funds have been added to the sovereign wealth fund transparency grading.
The Nigerian Sovereign Investment Authority (NSIA) has been upgraded to a 9 from a score of 4. The Kazakhstan National Fund was downgraded to a 2 from the first quarter of 2014.
The Linaburg-Maduell transparency index is a method of rating transparency in respect to sovereign wealth funds. Pertaining to government-owned investment vehicles, where there have been concerns of unethical agendas, calls have been made to the larger “opaque” or non-transparent funds to show their intentions.
Click on the index image to increase size.
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.
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
The North Dakota Legacy Fund, managed by the state’s Retirement and Investment Office, at the direction of the North Dakota State Investment Board, has hired a new fund manager. The State Investment Board manages assets for a number of other North Dakota state funds. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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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The Sovereign Wealth Fund Institute (SWFI) has released a public fund league table that seeks to track all public funds over US$ 10 billion in assets. These funds include national pensions, sovereign wealth funds, public pensions, superannuation funds and other public investment entities. This ongoing initiative hopes to bring transparency to the public investor industry. Sovereign wealth centers around the globe, at the same time retirement assets are surging in emerging market economies like Malaysia and Chile. Over US$ 20 trillion of capital is currently being tracked in the league table.
Over 200 Public Funds Ranked on the League Tables
|1||Social Security Trust Funds||United States||National Pension||2,764.4|
|2||Government Pension Investment Fund||Japan||National Pension||1,292.0|
|3||Government Pension Fund – Global||Norway||Sovereign Wealth Fund||878.0|
|4||Abu Dhabi Investment Authority (ADIA)||United Arab Emirates||Sovereign Wealth Fund||773.0|
|5||SAMA Foreign Holdings||Saudi Arabia||Sovereign Wealth Fund||737.6|
Source: Sovereign Wealth Fund Institute
Singapore Prime Minister Lee Hsien Loong is wrapping up his U.S. trip, stopping by to assist in opening Temasek’s new New York Office. The New York office will complement the sovereign wealth fund’s offices in Mexico City and São Paulo. Temasek joins it counterpart GIC Private Limited in having a New York presence. The office celebration event was held at the Waldorf-Astoria hotel. With approximately 270 guests including JPMorgan Chase chief executive Jamie Dimon and CEO of Temasek Ho Ching, the event comprised of many corporate executives.
In his remarks, Singapore PM Lee mentioned that Temasek’s interests are in line with Singapore’s broad connections with the United States. He reiterated that Singapore is either an Asian or regional headquarters for over 2,000 U.S. companies.
Lim Boon Heng, chairman of Temasek Holdings said in a press release, “Our New York office will work closely with our offices in Mexico City and Sao Paolo in Brazil to cover the Americas, both north and south. They complement our London office which was established in March this year to cover Europe and Africa. We look to both of them to provide a lift for our portfolio beyond Asia for the longer term.”
UK-based Standard Chartered PLC, a global bank with a heavy focus in emerging economies, has Singapore’s Temasek Holdings as its largest institutional shareholder. The Singapore sovereign wealth fund made the massive investment in the bank, betting on the long-term success of growth countries with rising middle class savers. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Overall, the sovereign fund will target 100 external mandates by 2016.
The report states, “The starting point for our management of the fund is to construct a tailor-made reference portfolio. We will continue to develop and refine alternative weighting schemes to support the long-term objective of the fund.”
Asset Allocation and External Manager Shifts
With the implementation of a reference portfolio, the sovereign wealth fund will have an expanded universe of asset classes and geographic sectors. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The London-based IFRS Foundation is responsible for the governance and oversight of the International Accounting Standards Board (IASB). Some trustees of the IFRS Foundation include Dick Sluimers, CEO of APG Group, and Wiseman Nkuhlu, the former economic adviser to former South African President Thabo Mbeki. The trustees have appointed Jin Liqun, who was chairman of the China Investment Corporation (CIC), as a trustee of the IFRS Foundation – a 3-year term position. Jin would start his appointment on July 1, 2014.
The sovereign wealth executive is chairman of the China International Capital Corporation Limited and a member of the foreign policy advisory committee of the Chinese Foreign Ministry.
China’s National Audit Office concluded in an audit that the China Investment Corporation (CIC) mismanaged a portion of international investments from 2008 to 2013 that led to losses. One key finding was that CIC employees failed to conduct adequate due diligence before investing capital in 12 overseas projects in the past 6 years. The auditor contends the CIC broke standard procedures when it hired external managers for a number of international projects.
In response to the state audit findings, the CIC plans to improve how it manages overseas investments by writing up an action plan to address the problems. Furthermore, the CIC is also working on standardizing the selection process of external managers.
Japan-based Nomura Asset Management, the asset management arm of Nomura Group, has opened its doors in the Dubai International Financial Centre (DIFC), making a commitment to multiply its client base in the Middle East by having boots on the ground. Nomura, Japan’s largest securities brokerage, has been in Dubai for more than 5 years; however, opening up asset management operations to serve their sovereign wealth clients has been a strategy in the making. Asset managers and service providers have made a big push to operate subsidiaries from the Gulf, seeing the region as a center of sovereign wealth. For example, in 2010, RBC Investor Services, then RBC Dexia Investor Services, opened an office in the DIFC.
Sovereign Wealth Centers in the Gulf
Nomura Asset Management is keen on promoting international products to sovereign wealth funds, public pensions and other institutional investors. To lead the Dubai office with regard to asset management, Nomura has hired Tarek Fadlallah as CEO of Nomura Asset Management Middle East.
When asked about more institutional houses opening up offices in the region, Tarek Fadlallah responded, “Perhaps but this time it’s likely to be based on a more sober assessment of the business opportunity rather than the hope which characterised the initial operational expansions between 2004-2008.”
According to Fadlallah, they decided to open an office in Dubai since, “The DIFC has become a respected financial hub with excellent regulatory oversight and physical infrastructure. It was a logical location for our first office.
Whether it is called sustainable investing or responsible investing, this concept of allocating capital that creates value for both the investor and society as a whole, has achieved traction among various institutional stakeholders in recent years. Commonly referred to as ESG investing (environmental, social and governance), a number of institutional investors are participating in the movement such as the New Zealand Superannuation Fund. In May, Australia’s Future Fund announced that it hired Joel Posters to head its ESG program. Already, the Future Fund is prohibited from investing in companies such as General Dynamics, Lockheed Martin and Singapore Technologies Engineering.
Moving beyond the screening process and usage of responsible investing principles, some institutional investors have hired ESG specialists to incorporate agreed factors into the decision-making process.
First Generation of ESG Strategy is Avoidance
Historically, application of ESG was conducted through a stock filtration process. Leading the early movements of responsible investing, pensions and church endowments, that focused on ESG, would screen out companies that were involved with areas such as gambling, human rights violations, defense companies and tobacco growers. Sovereign wealth funds like Norway’s Government Pension Fund Global and the Future Fund have adopted similar screening measures. In January 2014, Dutch pension juggernaut ABP let go of its investment in the Tokyo Electric Power Company, saying in a press release that, “During and after the nuclear disaster in Fukushima, the Japanese company structurally violated our standards [of responsible investing].”
According to ABP’s website, the pension giant sees itself as a long-term investor that views sustainable economic growth and ESG issues as key factors in investment analysis. As of June 1, 2014, the ABP excluded government bond investments from Somalia, Congo, Central African Republic, Sudan, North Korea, Iraq, Iran, Ivory Coast, Liberia, Libya and Eritrea.
Integration of ESG Factors in the Decision-Making Process
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David Neal, who is serving as chief investment officer of Australia’s Future Fund, has been promoted to managing director. Appointed by Future Fund Chairman Peter Costello, Neal takes his promotion in early August 2014.
Neal has been with the Future Fund since July 2007 and was previously head of investment consulting at Watson Wyatt Australia. During his role at Watson Wyatt, Neal advised the Australian government on setting up the Future Fund.
With Neal’s promotion, the Future Fund is in the process of searching for a chief investment officer.
In the press release, Costello states, “David is a world class investor and leader and the search process confirmed that he was the best qualified person for the role of Managing Director. He has played a pivotal role in establishing the Fund, building its credibility and delivering strong returns for Australia. The Board is confident that he and his team will build on this and strengthen the Fund’s reputation as a leading global investment institution.”
Just north of Mongolia, the governments of China and Russia are investing millions in the Zabaikalsky Region. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Sovereign wealth funds are plowing more money into (Brazil, Russia, India and China) BRIC nations, despite economic and political headwinds in emerging markets. Proprietary data from the Sovereign Wealth Fund Institute shows that more direct sovereign fund investment for 2014 is funneling into BRIC countries compared to similar quarters in 2013. According to the Sovereign Wealth Fund Transaction Database, for the first two quarters of 2013, about US$ 4.37 billion of direct sovereign wealth fund investment was allocated toward BRIC countries. For the first two quarters of 2014, BRIC countries received about US$ 4.62 billion. Furthermore, second quarter figures for 2014 are not fully counted for in the database. The 5.7% increase in BRIC direct sovereign wealth fund investment from those similar quarters indicates that sovereign funds remain tepidly optimistic in these dynamic growth markets. This is on the backstop of tightening economic sanctions from the West against Russia, bad loans on the books of Indian banks, real estate bubbles in China and growing economic disparity in Brazil. This is countered with optimism of India’s new Prime Minister Narendra Modi and Russian President Putin’s clearing of troops from Ukraine’s borders, increasing the possibility of easing economic tension.
In 2013, sovereign wealth funds directly invested US$ 18.5 billion in BRIC countries compared to US$ 11.3 billion in 2012.
Sovereign Wealth Fund Direct Transactions into BRIC Countries – Billions USD
Some recent trends for 2014 describe the onset of Chinese financial and consumer companies attracting sovereign wealth capital, especially from Singapore, the Gulf and Norway (each having an office in China). CITIC Pacific Limited’s capital raise attracted multiple sovereign wealth funds and large institutional investors. Temasek’s investment in India’s Star Agriwarehousing shows the attractiveness of public investor capital in select sectors of the country. In addition, the Russian Direct Investment Fund (RDIF) has been able to lure several sovereign wealth funds on some major deals such as the Ust-Luga LPG Terminal Port transaction.
Sovereign wealth funds have been advocating for increased foreign investor quotas in several emerging markets such as China and India. In May 2014, China’s State Administration of Foreign Exchange (SAFE) gave the Abu Dhabi Investment Authority (ADIA) an additional US$ 500 million in QFII quota. In 2013, sovereign wealth funds directly invested US$ 18.5 billion in BRIC countries compared to US$ 11.3 billion in 2012.
Brad Katsuyama’s IEX Group Inc., which garnered media headlines during Michael Lewis’ recent Flash Boys book tour, has found a new admirer. Norway’s Government Pension Fund Global (GPFG), the largest sovereign wealth fund on the planet, is supporting IEX by using it. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The California Public Employees’ Retirement System (CalPERS) has a new board member. California Governor Jerry Brown has appointed Dana Hollinger to the Pension Fund’s Board of Administration. She serves as the insurance industry representative.
Hollinger is the principal of the Dana Hollinger Group in Los Angeles, California. The company provides life insurance, estate planning and financial products with a focus on protecting the financial security of women.
“We look forward to Ms. Hollinger joining our Board,” said CalPERS Board President Rob Feckner from a press release. “Her experience in the insurance and finance industry will be valuable as we continue to provide sustainable pension and health benefits.”