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3 Key Political Factors for Attracting Sovereign Funds

In the past year, a number of sovereign wealth fund CIOs have spent quite a bit of time revisiting their geographic exposures.

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Is this a country that will respect our fiduciary capital? Are there other foreign asset owners investing significant sums of money into this country? There is a reason why sovereign wealth funds directly invested over US$ 29.4 billion (not counting fund investments and the majority of non-convertible bond purchases) into the United Kingdom during 2015, according to SWFI’s Sovereign Wealth Fund Transaction Database.

Factor 1: Private Ownership Laws and Historic Rights

Wealth funds, often perceived as opportunistic scavengers by the financial media, are quite conservative when allocating billions to a new country. These sovereign investors are attracted to nations where rule of law when it comes to private property is applied fairly and reasonably. Yes, there are many instances in which SWFs will invest in countries where ownership rights are not sacrosanct, but these usually involve a co-investment allocation from that host country into a particular company or asset. For instance, Russia has been able to court a number of wealth funds from China, United Arab Emirates, Saudi Arabia and other Eastern nations on co-investment deals into Russian growth or mature businesses.

The United States and the United Kingdom remain favorite investment destinations for many sovereign funds and the equity transaction figures prove it. Countries that have weak private ownership laws face the uncomfortable truth of receiving less sovereign wealth fund capital in general. In 2015, institutional investors, including a sovereign wealth fund in the group (Abu Dhabi Investment Authority), lost a court case in which the Oslo District Court ruled the Norwegian government can cut tariffs on the Gassled gas pipeline network. ADIA, Canada Pension Plan Investment Board (CPPIB), UBS and other institutional funds invested in a massive natural gas network, finding out later that they will miss out on an approximate US$ 2 billion in lost revenue from as the Norwegian government has the power to cut tariffs on the network.

Factor 2: Openness to Foreign Institutional Investors

This factor is partially related to private ownership. Obviously, wealth funds want to be welcomed when they scheme to allocate billions into a country or state. Being tarred and feathered, and shrieks of protectionism, are sure ways to avoid wealth funds from investing into one’s country on a heavier scale. However, in the last decade, sovereign wealth funds as a group have improved transparency in its many forms, according to an analysis of the Linaburg-Maduell Transparency Index over the years. This coupled with the need for long-term institutional capital into a country from the hangover of the global financial crisis, has lowered levels of protectionism in the West and even a number of Asian countries.

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Concerns Raised at Potential BlackRock Takeover of CalPERS’ Private Equity

The California Public Employees’ Retirement System (CalPERS) has been analyzing options on what to do with its massive US$ 26 billion private equity program. The pension system has embraced the mantra of reducing cost, reducing complexity and reducing risk, the hallmark of its program called “INVO 2020”. CalPERS also wants less, but more strategic relationships with external money managers. At one point, CalPERS was contemplating increasing its direct investment staff to model Canadian pension funds such as Canada Pension Plan Investment Board (CPPIB), OMERS and the Ontario Teachers’ Pension plan. The pendulum has begun to swing the other way as reported earlier by SWFI research staff.

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CDP Signs €1.7 Billion Infrastructure Loan Agreement with Atlantia Group

Cassa depositi e prestiti S.p.A. (CDP) and Atlantia Group’s Autostrade per l’Italia (ASPI) have signed a €1.7 billion loan contract dedicated to upgrading motorways in Italy under concession to ASPI. €1.1 billion will come in the form of a term loan with a 10-year tenure, with the remaining €600 million wrapped up in a five-year revolving loan.

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Sovereign Funds Commit to Integrating Climate-Related Risks at One Planet Summit

Representatives from a number of sovereign wealth funds who collectively govern over US$ 2 trillion in assets came together at the One Planet Summit at the Élysée Palace in Paris in order to discuss what public asset owners can do to incorporate climate change-related risks and opportunities into investment considerations.

The newly formed committee – called the One Planet Sovereign Wealth Fund Working Group – includes as its founding members the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA), Norges Bank Investment Management (manager of Norway’s Government Pension Fund Global), Saudi Arabia’s Public Investment Fund (PIF), and the New Zealand Superannuation Fund.

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