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3 Ways Asset Owners Are Preparing for Slower Global Growth in Fixed Income

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Last week, the Organization for Economic Co-operation and Development (OECD) lowered its estimate on worldwide gross domestic product for a second time in three months. OECD forecasted the global economy would grow by 2.9% versus 3% this year – and a lower 3.3% in 2016 from 3.6%. A major reason for the revised projection is the deceleration of China’s economic engine and its impact on emerging markets. In the OECD’s latest Economic Outlook No. 98, “China’s transition from infrastructure investment and manufacturing and towards consumption and services is one important reason for the decline in commodity prices, and may be reducing its role in global value chains as well.”

Some sovereign funds are attracted to U.S. credit spreads given low-expected returns estimated for traditional bond investments. In addition, many pension economists predict a slurry of U.S. corporate bond defaults. On November 13th, Fitch Ratings released the energy trailing 12-month default rate for October. It was at 5.3%, the highest point since a peak of 9.7% back in 1999.

The large in-house asset owners like OMERS and the Abu Dhabi Investment Authority (ADIA) have extensive capabilities with their fixed income teams.

#1. Continued Thirst for Yield

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White House Nominates Heath Tarbert for CFTC Chairman

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The White House announced Heath P. Tarbert will be nominated to serve as Commissioner and Chairman of the Commodity Futures Trading Commission (CFTC). Tarbert currently serves as Assistant Secretary for International Markets at the U.S. Treasury Department. Before joining the U.S. Treasury, Tarbert was a Partner at law firm Allen & Overy. Tarbert was confirmed by the U.S. Senate for his current Treasury post at 87 (yes) to 8 (no).

Upon Senate confirmation, Tarbert’s CFTC term would start on April 14, 2019 and last for five years. Tarbert is taking over from J. Christopher Giancarlo whose term ends in April 2019. Tarbert will need a U.S. Senate confirmation to take the head CFTC post.

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KIA Could Sell Stake in North Sea Energy Business

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The Kuwait Investment Authority (KIA), through its unit Wren House Investment Management, is nearing a deal to sell a 40% stake in its North Sea energy business to JPMorgan Asset Management. In July 2018, KIA closed on a deal to acquire oil and gas pipeline firm North Sea Midstream Partners from ArcLight Capital.

More details to follow –

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Pensioenfonds PGB Hires BMO Global for Equity Protection Strategy

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Pensioenfonds PGB is a Dutch multi-sector pension fund. PGB awarded a mandate to implement a protection strategy for its €12 billion equity portfolio to BMO Global Asset Management. PGB is a €26.5 billion fund. PGB has been using BMO Global’s responsible engagement overlay since 2017.

The Chief Investment Officer of PGB is Harold Clijsen.

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