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Brief Peak Inside the SAFE

What started as a small operation during the Asian Financial Crisis of 1997 now reverberates across capital markets and asset classes. The SAFE Investment Company invests money on behalf of China’s State Administration of Foreign Exchange (SAFE). China’s explosive growth over the last decade has filled the SAFE with foreign reserves, surpassing Japan’s massive pool of U.S. treasuries. As of October 2013, China’s foreign exchange reserves increased to US$ 3.66 trillion. China’s wealth is viewed by some government officials with conservatism and is described as xue han qian or “blood-sweat money” on the backs of Chinese workers.

China’s Foreign Reserves (Click to Enlarge Image) – Billions USD
SAFE-fxreseves-chinanov2013
Source: State Administration of Foreign Exchange

An ancient Chinese proverb, 富 不过三代 or fu bu guo san dai, essentially means, “wealth does not pass three generations.”

If one were to read more deeply into the Eastern adage, it can be interpreted like so: The first generation destroys the initial wealth; the second generation sacrifices and works hard, and the third generation learns to save – and the cycle repeats. The Chinese government went through three decades of transforming the country into a manufacturing powerhouse. In the context of the proverb, the Chinese have entered the “third generation.”

The 2007 shocks from the global financial crisis and Western banks’ massive deployment of stimulus measures have created a flood of inflationary currency in international markets. In addition, interest rates of U.S. treasuries plummeted. In 2007, officials at SAFE reacted; they moved their strategy to embark on diversifying into equities, specifically large cap stocks. They weren’t content to simply move capital into different asset classes, SAFE moved capital into different geographic markets such as Spanish bonds.

Investment managers at SAFE have held a long-term view of equity markets. Growing bold and opportunistic, SAFE’s managers predicted that the market drops of 2008 would trend upwards in the long-run. Not all market dislocations and opportunities were positive. SAFE opted to dip their toes into private equity and trust private equity firm TPG Capital to safely manage their capital. SAFE invested US$ 2.5 billion into a fund managed by TPG which invested in the now-failed Washington Mutual. Co-founded by David Bonderman, TPG later admitted their fifth fund was a mess.

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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.

Plans

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