1. Sovereign Investors are Falling Short on Infrastructure Targets
There is a compelling reason why many sovereign fund executives attend conferences, chat with bankers constantly and spend internal resources on networking. Finding quality infrastructure investments is a tough endeavor. Long-term wealth funds have revamped their allocations over the past few years to target more real assets such as properties and infrastructure. According to SWFI’s standardized fund flow data, wealth funds have 0.74% of their assets allocated in infrastructure. However, actual targeted allocation data toward infrastructure is more than 1% for sovereign funds. SWFI research suspects this number will rise due to the possibility of increase greenfield infrastructure being built in the West, rapid privatization of brownfield assets and the recycling of capital from infrastructure funds.
2. Asian Sovereign Funds Want a Slice of the Indian Financial Industry
According to SWFI’s Sovereign Wealth Fund Transaction Database, sovereign funds directly invested over US$ 4.56 billion into India in 2015. In early December, Singapore’s Temasek Holdings and private equity giant KKR, acquired a 3.9% ownership interest in life insurer SBI Life Insurance Company Limited for Rs 1,794 crore (US$ 264 million) from the State Bank of India (SBI). Specifically, a sovereign wealth enterprise (SWE) of Temasek Holdings is purchasing 1.95 crore shares at Rs 10, while an investment vehicle affiliated with the KKR-managed funds is doing the same. Temasek is purchasing a 1.95% interest for Rs 897 crore (US$ 133 million) in SBI Life. This values SBI Life at around Rs 46,000 crore. Temasek Holdings’ legal advisor was Khaitan & Co. Before the deal, SBI Life Insurance was a 74:26 joint venture between SBI and BNP Paribas Cardiff, the life, property and casualty insurance unit of BNP Paribas.
3. Gulf Sovereign Funds Contemplated Bank Bailouts
Sovereign wealth funds were the white knights for many financial institutions during the 2008 financial crisis. Still there is some speculation that the struggling Banca Monte dei Paschi di Siena S.p.A., an Italian bank, could still do a private recapitalization from the likes of the Qatar Investment Authority (QIA). The QIA could invest €1 billion in Monte dei Paschi di Siena. Even if the QIA deal does not go through, it is an indication that wealth funds will be optimistic going into 2017.
4. Redeploying Cash from Winning Investments
Many sovereign funds are stitching up deals late in 2016, whether in real estate or exiting illiquid company vehicles that have gone through an initial public offering. For example, Bermuda-based Athene Holding Limited, a fixed annuity service provider, had its initial public offering at US$ 8.25 billion. Athene was backed by Apollo Global Management LLC, but also had investors such as the Teacher Retirement System of Texas (TRS) and Cayman Islands-based Procific, a sovereign wealth enterprise of the Abu Dhabi Investment Authority (ADIA). The stock offering raised approximately US$ 1.08 billion, all for selling shareholders such as TRS and ADIA. Citigroup, Goldman Sachs and Wells Fargo were the underwriters for the Athene offering.
5. Asian Sovereign Funds Readjust Property Portfolios
Asian sovereign funds continue to realign their property portfolios. In May 2016, SAFE Investment Company, through its unit Gingko Tree, sold Adlerwerke in Frankfurt’s Gallus district to occupational pension fund Berliner Ärzteversorgung. Gingko Tree acquired the property in 2014 for €110 million going through Pramerica Real Estate Investors.
Banking behemoth J.P. Morgan Chase disclosed its own digital currency called JPM Coin. The digital token will be used to settle payments between clients. JPM Coin will be backed by physical U.S. dollars and be based off Quorum. Quorum is J.P. Morgan’s private Ethereum-based chain. JPM Coin plans to compete with Ripple, which created XRP, another digital currency that is used for settlements. Ripple’s main target market is cross-border payments and remittances.
The Central Bank of the United Arab Emirates and the Saudi Arabian Monetary Authority have unveiled their plans for Aber, an interbank digital currency. Both banks have indicated that Aber will be limited to financial settlements using distributed ledger technologies. It will be rolled out on a probational basis, and used by select banks within the two countries. A date for rollout has not yet been declared. A joint statement hinted at a broader application of the currency in the days ahead. If “no technical obstacles are encountered, economic and legal requirements for future uses will be considered.” Blockchains and Distributed Ledgers technologies will be employed. The plan is for ‘Proof-of-Concept’ testing, which involves studying and fully comprehending the ways modern technologies can achieve practical applications. The digital currency has the potential to become a reserve system for central payments.
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La Française and Canada Pension Plan Investment Board (CPPIB) formed a strategic partnership for the launch of a real estate investment and development vehicle: Société Foncière et Immobilière du Grand Paris. The joint venture between CPPIB (80%) and Caisse Fédérale du Crédit Mutuel Nord Europe (CMNE) (20%), La Française’s shareholder, will invest in major real estate projects linked to the Grand Paris infrastructure in the Greater Paris area. The parties will initially allocate €387.5 million in equity to the venture. The partnership will target regeneration and infrastructure-led investments.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Øystein Olsen, the Governor of Norges Bank, which oversees the Norway Government Pension Fund Global (GPFG), voiced his opinion on the Norwegian government’s plans to alter the rules that regulates the country’s SWF withdrawal rules in certain circumstances. The coalition government led by Norwegian Prime Minister Erna Solberg wants to relax the limits on SWF withdrawals in specific cases. Norway’s government seeks to raid the fund to pay for the replacement of four major state buildings impacted by a terrorist attack and a crashed Royal Norwegian Navy frigate (KNM Helge Ingstad).
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