Sovereign Wealth Fund Institute

Yngve Slyngstad

In the aggregate, a growing number of sovereign wealth funds are allocating more to public equities, less in fixed income. This adds a bit of volatility to their portfolios but at the same time, some funds have achieved impressive gains in certain years. Norway’s Government Pension Fund Global has made significant strides in allocating to public equity in markets such as Europe and the United States.

Yngve Slyngstad, the head of Norway’s sovereign wealth fund confirmed that the downgrade rating the United States received had no effect on the way the fund views investments in the country.

During the financial crisis, Norway’s Government Pension Fund Global had exposure to Fannie Mae and Freddie Mac. S&P gave many mortgage CDOs strong ratings at that point in time.

During a news conference regarding 2Q fund results last Friday, Yngve Slyngstad expressed, “The US debt downgrade had no effect on our portfolio or our thinking.”

According to the Wall Street Journal, “Offers for Bahrain Mumtalakat Holding Co.’s first-ever bond issue are in the range of $1 billion to $1.25 billion, according to a source familiar with the sale.

That means the sovereign wealth entity’s debut could be larger than the minimum $500 million benchmark size when it completes on Wednesday. Deutsche Bank, HSBC, JPMorgan and Standard Chartered are leading the sale.

The five-year senior unsecured bonds, rated A by Standard & Poor’s and A from Fitch Ratings, are expected to yield 300 basis points over mid-swaps. Proceeds will be used for general corporate purposes, including to refinance existing debt.

The Kingdom of Bahrain, which owns Mumtalakat outright, issued $1.25 billion in 5.5% bonds on March 24 via JPMorgan, Deutsche Bank and BNP Paribas, according to Dealogic.  In a note on June 21, Standard & Poor’s said there is an “almost certain likelihood that the government of Bahrain would provide timely and sufficient extraordinary support to Mumtalakat in the event of financial distress,” although it does not formally guarantee its liabilities.

Mumtalakat does not make material investment decisions without government consent, S&P added. Most of the company’s assets are in domestic real-estate, telecommunications, aviation, banking and manufacturing. Bahrain owns a separate holding company for oil and gas assets, the National Oil and Gas Authority.  The issuer’s decision to tap the capital markets for the first time was predicated on the Mumtalakat’s need to become more independent from Bahrain, said the source.

“In the wake of the Dubai World issues, Bahrain is trying to push these sovereign entities away from its balance sheet and would like them to fund themselves on their own,” the person said.”

Source: Wall Street Journal