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Are Asset Managers More Profitable When SWFs Invest in Them?

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It is no secret that listed asset managers and private equity firms are in the business of managing money for fees. In recent years, a number of sovereign wealth funds have been taking large stakes in investment firms. Some examples include the China Investment Corporation in Blackstone and Morgan Stanley, Mubadala in the Carlyle Group, Kuwait Investment Authority in Blackrock, etc. Note that in general the effect of the financial industry downturn, industry consolidation, fund product specialization, and increases in bringing investments in-house has had a significant impact in the asset management fee business.

Are investment firms more likely to be profitable when invested by a sovereign investor, or is it really the case of any large institutional investor? When SWFs invest in the actual asset manager, is there pressure to lower management fees?

Sovereign wealth funds investing in the asset management business may not want fees to be lowered, since they are investing in the business. With that being said, there is no way to track if management fees were scaled back directly, if the SWF decided to invest in a fund operated by the manager.

The below is not a scientific study but an observation:

On September 20, 2007, Mubadala invested $1.35 billion for a 7.5% stake in The Carlyle Group. They also committed $500 million to a Carlyle Fund. Mubadala was anticipating an IPO from the Carlyle Group soon, so they amped their stake in the middle of December 2010.

Data in USD Millions FY 2008 FY 2009 FY 2010
Fund Management Fees $811.40 $788.10 $770.30
Fee-Earning Assets Under Management (at period end) $76,326.40 $75,410.50 $80,796.50
Fund Mgmt Fees / Fee-Earning AUM 1.063% 1.045% 0.953%

Source: SEC Filings – The Carlyle Group

With publicly-traded asset managers (majority non-alternative) the relationship or correlation is non-existent, see below. We postulate the downturn had more to do with profit margins compressing in FY 2010. Sell-side analysts think profit margins will increase in the projected fiscal years.

Select Publicly-Traded Investment Managers – Profit Margins
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Nomura and CIC Contemplate Joint Investment Fund

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Japan-based Nomura Holdings is in talks with the China Investment Corporation (CIC) on forming a new investment fund. The fund could be receive commitments up to US$ 1 billion. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Temasek Holdings Dumps More of Celltrion

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On October 22, 2018, Singapore’s Temasek Holdings, through its sovereign wealth enterprise (SWE) Ion Investments, entered into its second block deal in selling shares in Celltrion, a South Korean bio-pharmaceutical company. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Alleged Fraud, Data Breaches, and Bias, Plague Facebook

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In an unfortunate break for Facebook, the true nature of its data breach is more troubling than previously believed. The social media giant revealed that its headline-topping security breach, which affected 29 million accounts, compromised personal information and seemingly confidential contact information. The FBI is said to be investigating. In September 2018, the story broke that user content, email, and phone numbers, along with personal profile information, was swiped from the site. Facebook has admitted the problem, but stopped short of offering users an apology. The U.S. Federal Trade Commission (FTC) and the Irish Data Protection Commission have questioned Facebook on the matter.

Access Tokens

At the root of the breach were Facebook “access tokens.” These are digital keys that give sites access to keep users logged in and to recognize them upon entry. Unknown hackers reportedly stole these access tokens for 400,000 people. They then used “friends lists” to steal tokens from their networks. Facebook did not shy away from noting that unauthorized access “included username, gender, locale/language, relationship status, religion, hometown, self-reported current city, birthdate, device types used to access Facebook, education, work, the last 10 places they checked into or were tagged in, website, people or Pages they follow, and the 15 most recent searches.” This is, clearly, a staggering amount of personal information and a black eye for the corporation.

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