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3 Patterns Heading into 2017 for Sovereign Funds and Asset Owners

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What trends will bleed into 2017 with regard to sovereign wealth funds, pensions and other asset owners?

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U.S. Equity Markets Look Attractive to Some Mega Asset Owners
Was the Trump victory rally just representing a reversion to the mean in U.S. equity markets? Renewed confidence in the U.S. economy and greater certainty has galvanized institutional investors such as the Korea Investment Corporation (KIC) and California Public Employees’ Retirement System (CalPERS) to rethink tactical allocation in public equities. With positive manufacturing data, healthier earnings growth prospects and possible changes in U.S. regulatory policy, U.S. equities could ride out into the 2017 sunset. Some institutional investors, like Australia’s Future Fund, are deploying more smart beta strategies, honing in on select factors, to catch the equity wave, rather than spending money on active managers. Smart beta strategies are subject to a wide dispersion of returns due to the growing number of factors to be selected. However, as U.S. pensions pile into low-volatility strategies, others are opting out, growing weary of its popularity.

Sovereign funds like GIC Private Limited are on the front line, partnering with non-banking financial institutions to lend money in a variety of markets such as the U.S., U.K. and even rapidly-developing economies such as India.

Asian Asset Owners Seeking Reliable Income
Asian institutional investor giants such as Japan Post Group are seeking reliable income overseas, in both traditional and non-traditional yield-oriented investments. Japan Post is looking to possibly allocate capital to real estate managers, targeting U.S. real estate, while other institutional investors like Japan’s Government Pension Investment Fund (GPIF), less further along in moving capital, hired CBRE Advisors to study the American property market. Some Asian investors are investing in mezzanine debt. As confirmed by SWFI Compass, an RFP and opportunity tracking service, South Korea’s Military Mutual Aid Association has conducted a study to see the advantages of investing in offshore non-performing loans and private credit funds. Other Korean public funds have invested in mezzanine debt in offices in Silicon Valley that have marquee tenants such as Alphabet (formerly Google).

Harvesting the Illiquidity Premium in Private Credit
Lock up too much in private credit, and the institutional investor may encounter liquidity issues, while committing too little, the asset owner may not receive the return given its intended allocation. Sovereign funds like GIC Private Limited are on the front line, partnering with non-banking financial institutions to lend money in a variety of markets such as the U.S., U.K. and even rapidly-developing economies such as India. With prolonged deleveraging in the banking system, wealth funds, pensions and private equity funds continue to generate risk-adjusted returns in exchange for being patience. U.S. pensions like the Orange County Employees’ Retirement System (OCERS) opted for allocating capital toward private credit managers even though the pension is contemplating lowering its credit allocation from 14% to 13%. OCERS is also considering eliminating its absolute return program, which consists of hedge funds and global tactical asset allocation (GTAA) strategies. OCERS’ pension peer, the State of Wisconsin Investment Board, recently allocated US$ 40 million toward Arbor Debt Opportunities Fund I, a captive subordinated debt fund managed by Chicago-based Arbor Investments.

QIA Becomes the Largest Shareholder in Colonial

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The Qatar Investment Authority (QIA) became the biggest shareholder of Inmobiliaria Colonial, SOCIMI, S.A. (Colonial), a Spanish listed real estate company. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mumtalakat Discloses Investment in Khairat Bahrain

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Bahrain Mumtalakat Holding Company disclosed an investment in Sudan called Khairat Bahrain. This is an agricultural investment in Sudan. The food and agriculture sector is key investment sector for many Gulf-based state investors. Khairat Bahrain is located in the world’s richest expanse of groundwater (the Nubian Sandstone Basin) occupying an area of approximately 100,000 feddans (400 square kilometers). The Nubian Sandstone Aquifer System is the world’s largest known fossil water aquifer system.

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Temasek Acquires Cybersecurity Firm Sygnia

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Singapore’s Temasek Holdings agreed to acquire Sygnia, Inc., an Israeli cybersecurity technology and services provider. Unverified estimates of the deal amount are around US$ 250 million. Sygnia runs out of Tel Aviv, but has an office in New York. Sygnia assists companies respond to cyber threats.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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