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Blurring Lines of Emerging Market Debt

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Global money flows are shifting faster. Institutional investors have been at fault at trying to divide the world into sections such as developed markets versus emerging markets. Before the crisis, developed markets were thought of to be risk-free. Looking through the eyes of a developed market investor in the past these emerging economies have had defaults or issues with inflation. Times have changed and these growth economies are increasing real GDP year over year and playing a bigger role in the world economy.

After the financial crisis of 2008, the lines between “risky” and supposedly “risk-free” are blurring. Investors still remember issues with Latin American defaults, etc., but now Western economies are faltering. Greece, Portugal are facing dire issues, even the United States lost its AAA rating. Bottom-line, the risk premia for emerging markets has dropped as their finances have improved and credit ratings increase. In fact, many emerging markets are net creditors, possess strong reserves and have created sovereign funds to invest abroad.

Emerging market debt can be a source of diversification and alpha for public investors. Investor appetite is growing as many risk-averse investors are pushing down yields in treasuries and other safe haven instruments. The biggest move for emerging market debt is if it can cross into being considered investment grade. This is the ultimate game changer for emerging market debt.

GIC Sells Arizona Biltmore to Blackstone

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Blackstone Real Estate Advisors, part of the Blackstone Group, acquired the 740-room Arizona Biltmore hotel, located in Phoenix, for US$ 403.4 million. The deal closed on April 20, 2018.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Acquires Stake in Growing Hedge Fund Phoenician Capital

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Mubadala Investment Company, through its unit Mubadala Capital, purchased a minority stake Phoenician Capital, LLC. Although terms and size of the deal were not disclosed, the agreement grants Mubadala Capital rights to invest in a fund managed by the New York-based firm, which generated respective returns of 40.8% and 33.0% in 2016 and 2017, against benchmarks of 12.0% and 21.8% for the S&P 500. The hedge fund runs the Phoenician Offshore Fund Ltd.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Large Asset Managers Continue to Move Operations Out of California

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In the 2010s, Fisher Investments, an investment firm run by Ken Fisher, moved a large number of employees from the Woodside and San Mateo campuses to a town called Camas in Washington, near Portland. Vanguard has a large operational presence in Arizona, while Charles Schwab Corporation has expanded its technology operations and client services in places like Denver, Dallas, Austin and Phoenix. Dimensional Fund Advisors moved its headquarters in 2008 from Santa Monica, California to Austin.

While asset managers reap profits and try to lower employee head count costs, looking to fly-over country seems appealing.

The Pacific Investment Management Company (PIMCO), part of the Allianz family, selected Austin, Texas as its new office to hire more client services and technology talent. The PIMCO Austin office will open later in 2018. PIMCO is headquartered in Newport Beach, California, with an office in New York City.

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