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Are Institutional Investors Out of the Woods?

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As institutional investors glaze over inflation expectations, many are mystified with the recent global equity rally.

managers

Wasn’t post-Brexit supposed to deliver a wave of chaos to markets? Should investors thank the Bank of England for its recent actions or was there over-panic regarding Brexit? Astonishingly, the Citi G10 Economic Surprise Index has risen to recent highs against the setting of one of the most significant political-economic events, according to the plethora of financial media commentators. The index measures data releases versus economists’ prior expectations. When data comes in weaker than expected, the index declines. When data comes in stronger than expected, the index inclines. Helsinki-based Etera Mutual Pension Insurance Company posted a 1.3% return for the first half of 2016, in which the investor’s Chief Executive Stefan Björkman said in a public release that, “Brexit did not rattle Etera’s investment portfolio or solvency.”

Other institutional investors such as Canadian and U.S. pensions have signaled their intentions to remain allocated to the United Kingdom. Even Norway is committed to remain investing in the U.K. Norway’s sovereign fund returned 1.3% for its second quarter 2016 period – equities contributed 0.7%. In fact, equities make up 59.6% of the wealth fund’s allocation at the end of June 2016. If equities were to continue to rally, the sovereign investor would greatly benefit, offsetting losses in past quarters.

Are We Out of the Woods?

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Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway’s GPFG Banned from Investing in 9 Companies Over Nuclear Weapons

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The recent false alarm caused by a state employee in Hawaii (who was not terminated and reassigned to a new position), triggering the Emergency Alert System message at 8:07 a.m. caused pandemonium in the state. After decades of failure in diplomacy between the United States and North Korea, the threat of a nuclear missile attack has grown since. The states of Alaska and Hawaii are the closest states to North Korea.

Besides the recent news in the world of nuclear missiles, Norges Bank oversees the management of the country’s sovereign wealth fund. The central bank has moved to ban nine companies from the Government Pension Fund Global. In addition, one company has been placed under observation. The Executive Board of Norges Bank’s decisions on exclusion were made on the basis of recommendations from the Council on Ethics. However, before moving to exclude a company, the central bank may consider other options, such as the exercise of ownership rights. In these instances of companies, the board determined that it was appropriate to use other measures in these cases.

The Council on Ethics’ recommendations to exclude:
Risk of severe environmental damage and serious or systematic violations of human rights
Evergreen Marine Corporation (Taiwan) Ltd
Korea Line Corporation
Precious Shipping PCL
Thoresen Thai Agencies PCL

Unacceptable risk of serious or systematic violations of human rights
Atal SA

Over involvement in the production of nuclear weapons
AECOM
BAE Systems
Fluor Corporation
Huntington Ingalls Industries Inc
Honeywell International Inc (already previously excluded)

Placed Under Observation
Pan Ocean Co. Ltd

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Sistema to Pledge Assets to Help Fund Settlement

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The Russian Direct Investment Fund (RDIF) is helping a settlement situation between two Russian economic powerhouses. In January 2018, Sistema, under a settlement, is mandated to pay Bashneft oil company, which is owned by energy behemoth Rosneft, 100 billion roubles (US$ 1.8 billion) by March 30, 2018.

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