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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. ]

Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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Mubadala and SAMI Forge Ties to Explore Areas of Collaboration

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Mubadala Investment Company and Saudi Arabia Military Industries Company (SAMI), which is a defence company owned by Saudi Arabia’s Public Investment Fund (PIF), agreed to a deal to partner and co-invest in defense manufacturing. This partnership grows defence ties between Saudi Arabia and the United Arab Emirates.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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