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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. ]

GIC Sells Arizona Biltmore to Blackstone

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Blackstone Real Estate Advisors, part of the Blackstone Group, acquired the 740-room Arizona Biltmore hotel, located in Phoenix, for US$ 403.4 million. The deal closed on April 20, 2018.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Acquires Stake in Growing Hedge Fund Phoenician Capital

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Mubadala Investment Company, through its unit Mubadala Capital, purchased a minority stake Phoenician Capital, LLC. Although terms and size of the deal were not disclosed, the agreement grants Mubadala Capital rights to invest in a fund managed by the New York-based firm, which generated respective returns of 40.8% and 33.0% in 2016 and 2017, against benchmarks of 12.0% and 21.8% for the S&P 500. The hedge fund runs the Phoenician Offshore Fund Ltd.

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Large Asset Managers Continue to Move Operations Out of California

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In the 2010s, Fisher Investments, an investment firm run by Ken Fisher, moved a large number of employees from the Woodside and San Mateo campuses to a town called Camas in Washington, near Portland. Vanguard has a large operational presence in Arizona, while Charles Schwab Corporation has expanded its technology operations and client services in places like Denver, Dallas, Austin and Phoenix. Dimensional Fund Advisors moved its headquarters in 2008 from Santa Monica, California to Austin.

While asset managers reap profits and try to lower employee head count costs, looking to fly-over country seems appealing.

The Pacific Investment Management Company (PIMCO), part of the Allianz family, selected Austin, Texas as its new office to hire more client services and technology talent. The PIMCO Austin office will open later in 2018. PIMCO is headquartered in Newport Beach, California, with an office in New York City.

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