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A Bitter Pill for Emerging Markets

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cloudsSovereign wealth funds have opened their enlarged ears on Ben Bernanke’s spoken words – the word tapering. Central bank actions have contributed volatility in government bond yields which has stressed public investors. A gradual withdrawal of excess liquidity would stem the tide of hot money flowing to emerging markets. This is a wake-up call for institutional investors that have significant exposure to emerging markets. Sovereign funds like Temasek Holdings and Singapore’s GIC have made huge bets in large companies in Southeast Asia, especially in banking. The Abu Dhabi Investment Authority modified their asset allocation to be more accommodative to investments in Latin America and Asia. The China Investment Corporation has been an avid investor, investing in South Africa’s Shanduka Group, paying two billion rand for a stake.

The majority of institutional investors still perceive emerging markets as an asset class, even though each “emerging market” is quite diverse in their makeup. The effect of QE policy will impact each emerging market different.

BRICS
Trouble is brewing in the world of BRICS. Profiting from positive economic growth in recent years, a slowdown in growth will fan the flames of discontent. Nations with current account deficits like Brazil seem to be at most risk for institutional investors. In addition, commodity dependent countries may be vulnerable if China slows down their economic workshop.

Could the decrease in hot money have an impact in Brazil? Inflation in Brazil has caused social tension. The rise in the cost of public transportation augmented the cost of living in Brazil. On June 18, 2013, 50,000 protestors assembled in the streets of Sao Paulo to express frustration at the government.

Funds and Ownership, KKR Partners with Shinhan Financial

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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norwegian Government Recommends SWF Remains at Central Bank

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There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.

Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”

Some Central Bank Recommendations

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Invesco Buys OppenheimerFunds for $5.7 Billion

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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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