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Are Asset Managers More Profitable When SWFs Invest in Them?

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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Asian Sovereign Funds Not Slowing Down on Tech Investing

According to data from SWFI’s Sovereign Wealth Fund Transaction Database, Asian sovereign funds invested US$ 6.05 billion directly into companies and assets in the information technology sector from Jan 2017 to November 22, 2017. In a comparable time frame from Jan 2016 to November 22, 2016, this same group of Asian sovereign funds directly invested US$ 5.02 billion in the sector. These are direct investments, not fund commitments or manager allocations.

Asian sovereign funds such as GIC Private Limited, Temasek Holdings and the Korea Investment Corporation (KIC) have demonstrated bullish signals to the technology community over other sectors. GIC and Temasek have also been major investors in the private side of deals, funding a wide range of tech startups, while providing financial firepower in buyout transactions.

Some notable direct tech investments in 2017 by sovereign funds include Meituan-Dianping, SoundCloud, Nets A/S, Visma AS, Turn, Inc. and Vantiv.

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Future Fund Makes a Guardian Out of Former J.P. Morgan ANZ Chair

The Australian government has appointed Robert Priestley – current non-executive chair of J.P Morgan for Australia and New Zealand (ANZ) and a non-executive director of ASX – to serve on the Future Fund Board of Guardians for a five-year term from November 7, 2017. Priestley replaces former Morgan Stanley Australia chief executive Steven J. Harker.

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Associated British Ports Reboots Property Development Arm to Capitalize on Land Bank

Associated British Ports (ABP) – operator of 21 major ports throughout the United Kingdom – has announced a reboot of its ABP Property division, complete with a new team of specialists in commercial development and logistics led by Huw Turner, in order to identify and develop strategically significant locations in its 2,372 acre land bank.

ABP is owned in large part by a consortium of pensions and sovereign funds, including the Canada Pension Plan Investment Board (CPPIB) at 33.88% ownership, OMERS at 30%, Singapore’s GIC Ventures Pte Ltd at 20.00% ownership, and the Kuwait Investment Authority at 10.00% ownership. Large institutional investors such as sovereign funds, pensions, and endowments have slowly increased allocation towards infrastructure over the past six years as an alternative to equities and bonds, according to asset allocation data from SWFI.


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