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5 Fears and Dreams by Sovereign Funds Regarding Trump’s America

Will Donald Trump’s proposed policies drive up U.S. consumer and business spending – a number of large sovereign funds think so? Could the U.S. reach 4% GDP growth in 2017?

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On January 16th, the International Monetary Fund (IMF) raised its forecast for the United States over the next two years. Why? The IMF believes Donald Trump’s business policies could be a boon for American economic growth. However, the IMF warned publicly that Trump’s protectionist trade proposals could provoke trade wars, a scary scenario for global sovereign wealth investors. Other concerns by public funds include how a rise in U.S. interest rates could impact asset prices and rapid currency movements in the U.S. dollar.

U.S. Shifting from Monetary Policy Toward Fiscal Policy

During the global financial crisis of 2008, wealth funds were opportunistic, deploying cash to scoop up distressed companies and assets. As quantitative easing (QE) policies dragged on in Japan, the U.S. and Europe, public funds grew frustrated in finding suitable investments. Under U.S. President Barack Obama, the low-yield environment was greatly prolonged, forcing sovereign investors to desire private markets over public markets. Wealth funds like the Abu Dhabi Investment Authority (ADIA) have increased allocation toward private credit funds, while funds like Australia’s Future Fund committed to high-yield funds managed by firms like Haymarket Financial, Oaktree Capital Management and Westbourne Credit Management Limited. Wealth funds are anxious to see Trump’s implementation of possible tax cuts, proposed infrastructure plan and de-regulation in certain industries which could summon animal spirits.

Infrastructure Dreams

Faced with low returns in public markets and seeking to lockup intergenerational capital, sovereign funds from Asia and the Gulf region are keen on U.S. infrastructure. They are waiting for national plan. For example, publicly, both the China Investment Corporation (CIC), Qatar Investment Authority (QIA) and Kuwait Investment Authority (KIA) have indicated a preference to invest in U.S. infrastructure both greenfield and brownfield.

Fear of Protectionism and Trade Restrictions

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NZ Super Resumes Government Contributions

The New Zealand Superannuation Fund (NZ Super) has resumed receiving contributions from the New Zealand government in the face of rising obligations as an increasing proportion of the country’s population approaches retirement. According to a statement released by the fund’s managing Board of Guardians, the government plans on investing US$ 5.3 billion into NZ Super between now and June of 2022, with the first payment scheduled for December 15, 2017.

Policymakers believe the resumption of government contributions, which were halted in July of 2009, is expected to ease the burden on the country’s current taxpayers and future generations. Withdrawals from NZ Super are expected to peak in 2078, at which point the fund will be covering 12.8% of New Zealand’s pension obligations. The new wave of contributions will initially be invested in passive, low cost equity and bond investments, according to Catherine Savage, Chair of the Guardians.

Recent Performance & Leadership Change

NZ Super has enjoyed one of its best annual performances since its founding in 2001, with a reported return of 20.7% before tax for a 12-month trailing period ended June 30, 2017, up 5 billion NZD (US$ 3.6 billion) compared to 2016. NZ Super generated 21.85% annual return in its global equities, developed market portfolio, according to its 2017 annual report.

NZ Super faces a changing of leadership in the coming year with the exit of chief executive Adrian Orr, who will leave the Fund officially in March of 2018 to serve a five-year term as Governor of the Reserve Bank of New Zealand. Mr. Orr has earned a spot numerous times in the Sovereign Wealth Fund Institute’s Public Investor 100 annual ranking over the years, most recently in 2017 at #3.

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iZettle Raises US$ 47 Million in Series E, Prepares for 2018 Listing

Card transaction platform iZettle AB has raised another US$ 47 million in Series E funding, this time with new backing from Sweden’s AP4 and early-stage venture capital firm Dawn Capital. Previous investors in the Stockholm-based payments business include American Express, MasterCard, Intel, and Spain’s Santander Group. With US$ 235 million in equity to date, iZettle is quickly approaching an estimated valuation of US$ 1 billion.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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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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