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Are Sovereign Wealth Funds Ready for Inflation?

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Animal spirits have been released with the promise of less regulation, giving institutional investors renewed confidence in both stock and bond markets.

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Instead of just guessing what central banks are going to do, a number of sovereign investors are analyzing various real economies, collecting industrial data and studying growth projections. In fact, the gigantic Abu Dhabi Investment Authority (ADIA) had opened up an office in Hong Kong, allowing the wealth fund enhanced access to timely information and deal flow in the economically expanding Asian region. ADIA has been investing in Asia for over three decades, but now sees even more promise in the region.

What are institutional investors to do, as the U.S. Federal Reserve appears to be more confident, thus a potential to raise interest rates? The next question is what pace will central banks raise rates and how much? Sovereign funds, pensions and endowments have been used to accommodative monetary policy through no fault of their own. Rate-cutting and quantitative easing policies were implemented globally by central banks to avoid the pain and attempt to stimulate growth. Between 2011 to 2016, global growth was positive, but crawling and failed to trigger a rise in inflation.

Since the late 1990s, deflation became the worry and portfolio managers grew accustomed to the current relationship between bonds and stocks. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

SWFI First Read, May 25, 2018

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MedInvestGroup Pushes Investment into Russian High-Tech Oncology Centers

The Russian Direct Investment Fund (RDIF) and Mubadala Investment Company have attracted MedInvestGroup, which manages a network of the PET Technology regional oncology and radiological centers, as a strategic investor in the joint management and development of a network of cancer diagnosis and treatment centers. The deal aims to significantly improve the efficiency of the already functional centers in Podolsk and Balashikha. The corresponding agreement was announced today at the St. Petersburg International Economic Forum.

Southern Satellite City and RDIF Reach a Financing Agreement

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French Industrial Giants Find Opportunity with RDIF

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A number of French industrial companies continue to invest within Russia, finding opportunities within the mega country. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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CPPIB Targets 33% in Emerging Markets by 2025

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The Canada Pension Plan Investment Board (CPPIB) generated a net return after expenses and pension contributions of 11.6% for the fiscal year ended March 31, 2018, versus its reference portfolio of 9.8%. For the reported fiscal year, CPPIB grew its net assets to a new high of C$ 356.1 billion (US$ 277.2 billion), compared to C$ 316.7 from the year previous.

Mark Machin, President and Chief Executive Officer at CPPIB, attributed the performance to the rising tide in public equity markets across most geographies, whose volatility in recent months was buoyed by significant fourth quarter earnings in the fund’s private holdings. Public and private equities, CPPIB’s first and third largest asset classes by exposure at 38.8% and 20.3%, saw estimated returns of 11.4% and 16.1%, respectively. Machin joined CPPIB in 2012 and was moved to the top in June 2016, following the departure of Mark Wiseman. Machin has a knack for the Asian region, being CPPIB’s first president for Asia and also spent nearly 20 years in Asia, working at Goldman Sachs. CPPIB plans to continue heavily investing in the APAC region, along with India.

Emerging Markets

“By 2025, we will invest up to a third of the Fund in emerging markets, which by that time are anticipated to account for 47% of global GDP,” said Machin in his section of the annual report outlining the pension’s updated strategic plan. CPPIB currently has C$ 56.1 billion invested in emerging markets, C$ 22.4 billion of which is wrapped up in China.

Foreign and emerging markets continued to dominate in CPPIB’s private equity investments with returns of 16.0% and 19.5%, compared to 1.8% for their Canadian counterparts. Asia was a standout market for the pensioner, which raised its exposure to private equity deals in the region by nearly 28% from C$ 13.4 billion to 17.1 billion, closed six direct investments worth C$ 1.6 billion, committed C$ 1.7 billion towards eight funds, and completed three secondary transactions for C$ 400 million.

With 275 global transactions completed over the fiscal year, CPPIB’s geographic exposure places 15.1% of its assets at home in Canada, 37.9% in the neighboring United States, 13.2% in continental Europe, 5.6% in the United Kingdom, 3.1% in Australia, and a whopping 20.4% in Asia.

Public Equities

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