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ALMOST FLAT: Norway SWF Posts 0.1% for 3rd Quarter of 2014

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Yngve Slyngstad

Yngve Slyngstad

Norway’s Government Pension Fund Global (GPFG) posted a 0.1% return for the third quarter of 2014. Equity investments posted -0.5% for the period, while fixed income posted 0.9%. Real estate investments for the period returned 1.5%.

In a press release, Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), stated, “Two quarters of strong returns were followed by a virtually flat quarter.”

Slyngstad added, “Increased geopolitical uncertainty in the vicinity of the euro area contributed to a negative return on European stocks. The US, on the other hand, emerged as the global growth engine, and US stocks produced a positive return. The negative overall return on equities was cancelled out by a positive return on the fund’s fixed-income investments.”

Slyngstad commented on the fund’s real estate strategy, mentioning they are investing in a limited number of cities globally, focusing on office and retail properties. The real estate acquisitions have occurred in Europe and the United States. The sovereign wealth giant has partnered with large institutions such as MetLife, TIAA-CREF and Prologis on these purchases.

Yngve Slyngstad was ranked #4 on the Public Investor 100 list for 2014.

Rising Interest Rates Impact Sovereign Wealth Strategies

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Sovereign wealth funds are paying closer attention to the U.S. Federal Reserve as it enters fresh territory under Jay Powell. Powell’s decisions are impacting foreign exchange holdings globally, as central bankers adjust to a newer environment of policy normalization. The United States is not the only country raising interest rates. The Philippines, Argentina, Indonesia, India, Czech Republic, Ukraine and Pakistan are just some emerging market countries that have raise interest rates.

Global institutional investors like BlackRock are concerned that the U.S. dollar could grind higher. In times of increased geopolitical or financial tensions, the greenback is seen as a safe haven by many central banks, sovereign funds and foreign public funds. July marks the 110th month of expansion, a streak that is one year away from becoming the longest in U.S. history. Stronger economic data – with U.S. gross domestic product hitting 4.1% for the second quarter of 2018, rising interest rates, and bids to lower U.S. trade deficits, are making sovereign funds rethink asset allocation or at least shift more assets out of markets like Turkey, South Africa and Brazil. The Turkish lira fell further in August, prompting the country’s central bank to take drastic action. The fallen lira sent jitters across emerging markets and to banks in Southern Europe who have exposure to Turkey. What are sovereign wealth funds doing now?

On the fixed income front, sovereign funds are paying much closer attention to their government bond holdings, keeping a close eye on countries that rely heavily on external funding. Shorter duration bonds and inflation-linked debt can act as a safeguard against rising rates and inflation. Sovereign funds, like Singapore’s GIC Private Limited, are recognizing that global equity returns are less synchronized, thus there is a move to identify select countries and regions being conducted for strategic asset allocation for 2019 and beyond. A stronger greenback, positive U.S. corporate earnings, and rising trade tensions between the U.S. and China are becoming a boon for active equity managers and smart beta funds, as public funds are requesting enhanced levels of skills in navigating stock selection. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Senator Warren Seeks Greater Federal Government Controls over Big Business

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U.S. Senator Elizabeth Warren of Massachusetts introduced a bill to mandate large U.S. corporations to obtain a federal charter and give up board seats to company employees. Taking a page from the German economic playbook, the legislation called the Accountable Capitalism Act, seeks to bring more stringent federal government controls onto large American corporations. This law would apply to both public and private U.S. companies. Countries like China, India and Germany have embraced a variety of forms of state capitalism.

Federal Charter for Large U.S. Businesses

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More U.S. Institutional Investors are Adopting ETFs, While Smart Beta Rises

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New research out of Deutsche Bank indicates that exchange-traded funds (ETFs) are primarily funded by U.S. institutional investors, accounting for US$ 2 trillion of the US$ 3.3 trillion total allocated to the funds. This is a 40 % increase from the numbers just two years ago, in 2016. Deutsche Bank strategist Chin Okoro notes, “Institutions are increasingly using ETFs as vehicles for more sophisticated portfolio solutions.”

The SPDR S&P 500 ETF (SPY) is the most popular, with US$ 185 billion of its investment coming from institutional investors. Other in-demand ETFs include the iShares Core S&P 500 ETF (IVV), iShares MSCI EAFE ETF (EFA), Vanguard FTSE Developed Markets ETF (VEA), and Vanguard FTSE Emerging Markets ETF (VWO). Smart beta funds are also gaining ground as the ETF universe matures.

Smart Beta Continues to Rise

Smart beta funds or factor-based ETFs, a type of fund that uses alternative index construction rules instead of the typical market cap-weighted index strategy, are also gaining adoption by pensions, sovereign wealth funds and insurance companies. At the end of 2017, smart beta funds had surpassed US$ 1 trillion in assets for the first time. The low cost of managing the funds makes them especially attractive for investors. A smart beta fund’s offering of intentionally-chosen, diversified holdings could spell trouble for active managers. Recently, Janus Henderson CEO Richard “Dick” Weil suggested as much on Bloomberg TV, and he vowed to make the case that actively managed funds could still provide a higher return than passive funds. Goldman Sachs, State Street, Franklin Templeton, and Fidelity International have all launched smart beta funds in recent years.

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