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5 Risks Keeping Sovereign Wealth Funds Up at Night

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#5. Sustained Low Range of Oil Prices

Sustained low prices of oil are affecting the funding input levels of commodity-based sovereign wealth funds. These current fossil fuel prices are economically squeezing countries like Russia, Saudi Arabia, Venezuela and Iran in harmful ways. Economists, pundits, energy CEOs and policymakers are trying to get a grasp on the long-term price of oil. Lao Tzu, a 6th Century BC Chinese Poet, wrote, “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.”

Commodity-based sovereign funds such as the Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority (KIA), may face increased withdrawals to fund deepening fiscal deficits, while cash infusions have shrunk for wealth funds like Norway’s Government Pension Fund Global. Norges Bank Investment Management (NBIM) CEO Yngve Slyngstad revealed to the public that in the first quarter of 2015, Norway’s sovereign wealth fund received the lowest amount of new capital in 16 years.

In 2014, according to the Sovereign Wealth Fund Transaction Database, Gulf sovereign wealth funds directly invested, not including listed real estate and funds, over US$ 10 billion in real estate.

#4.Competition in Alternatives

Increasingly, sovereign wealth funds and pensions are finding fewer opportunities in alternative assets such as private equity and infrastructure. Governments and large utilities are looking to sell off developed infrastructure to cash in on demand, while global buyout funds are being even more bold, taking companies private at rising prices (thanks to inexpensive financing and dry powder). For example, Barcelona-based Abertis Infraestructuras SA is having an initial public offering for its tower operator unit Cellnex Telecom. Real estate appears to be less risky for now, as more public institutional investors rush to buy up core properties. In 2014, according to the Sovereign Wealth Fund Transaction Database, Gulf sovereign wealth funds directly invested, not including listed real estate and funds, over US$ 10 billion in real estate. Some sovereign wealth funds are taking advantage of rising demand for real estate, especially industrial properties. Singapore’s GIC is near exiting its US$ 1 billion real estate portfolio in Australia.

#3. People Are Getting Older in Developed Markets

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SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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Japanese Government Capital Provides Initial Life for Texas Bullet Train

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Dallas-based Texas Central Partners, LLC is the developer of a proposed high-speed rail system, dubbed the Texas Bullet Train, between Dallas and Houston. Project costs are estimated between US$ 12 billion to US$ 15 billion. The developer secured US$ 300 million in project loans from Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) and the Japan Bank for International Cooperation (JBIC). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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DOJ Investing Tesla Over Musk Comments

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The U.S. Department of Justice (DOJ) is conducting a fraud investigation over Tesla as its CEO Elon Musk made public statements on twitter. This is a criminal probe. In addition, earlier, SWFI reported the U.S. Securities and Exchange Commission (SEC) is conducting a civil inquiry into Elon Musk regarding his statements.

This all surrounds Musk tweeting in August that he was thinking of taking Tesla private and had “funding secured” for the transaction. Both government authorities are seeing if Musk misled investors and violated federal securities laws with his public statements.

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