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11-Year-Low: Awful Oil Milestone for Gulf Sovereign Funds

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Backed by public pension fund capital, private equity money, hedge funds and Wall Street, recent fossil fuel production in the United States has transformed the global energy model, returning some economic power to the West. The story has changed with the force of the American shale revolution. After coming back from a signature climate deal in Paris, United States President Barack Obama reluctantly inked a bill to lift the U.S. export ban on selling oil. The U.S. Senate passed the bill with a vote of 65-33. Democrats were able to get in another 5 years of solar and wind tax credits in the bill. The export ban had its origins when the United States experienced oil shortages, especially during the Carter administration. The U.S. Energy Information Administration (EIA) mentions that the country’s current oil inventories stand at 490.7 million barrels. U.S. oil reserves are at an 85-year high, with refineries running at 92% capacity – the week ending December 11, 2015. To compound the aggressive oversupply issue, OPEC in December reiterated they have no plans to decrease production. In addition, Russian oil production reached a post-Soviet record. Will oil reach US$ 20 a barrel? The price of Brent crude oil fell to an 11-year low, getting stumpy at US$ 36.05 per barrel on December 21st. U.S. West Texas Intermediate futures rolled down to 33 cent to US$ $34.40 a barrel – lowest level since 2009.

Many of these Middle Eastern sovereign funds have been reluctant to tap into sovereign wealth reserves, opting to cut fiscal spending or raise government debt.

The Gulf Reaction

As of December 2015, 56.28% of sovereign wealth assets are derived from oil & gas related funds. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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