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Direct Sovereign Wealth Fund Transactions Grow in 2013

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According to our proprietary Sovereign Wealth Fund Transaction Database, in 2013, sovereign wealth funds completed 1,883 direct transactions with a total value of US$ 66.05 billion, an increase US$ 1.38 billion from 2012. The number of direct transactions grew by 53.8% from 2012 and tripled the number of transactions compared to 2011. Emboldened sovereign funds amplified direct investments in a number of countries including Germany, Australia and China.

Direct Sovereign Wealth Fund Transactions by Year – Billions USD
sovereign wealth fund transactions
Source: Sovereign Wealth Fund Transaction Database

This reflects that larger sovereign wealth funds are investing directly into assets such as bonds, stocks, real estate and even infrastructure. In general, sovereign funds have had the augmented capabilities to attract talent to improve internal operations and deal sourcing. Another interpretation is that sovereign funds are investing frequently, but in lower deal amounts. One explanation is that through 2007-2009, sovereign funds bailed out financial institutions, domestic governments and bet big on large industrial companies.

Popular Sectors for Direct Sovereign Wealth Fund Investment

The real estate sector dominated 2013, with over US$ 17.5 billion recorded in direct sovereign wealth fund transactions. This was followed by the financial sector at around US$ 11 billion and the materials sector at approximately US$ 9.2 billion.

Top 5 Sectors for 2013 – Direct Sovereign Fund Transactions

Sector Weight
Real Estate 27%
Financials 17%
Materials 14%
Energy 10%
Utilities and Infrastructure 8%
Other Sectors 24%

Source: Sovereign Wealth Fund Transaction Database

Maiden Lane I Ends, Federal Reserve Aims to Shrink Balance Sheet

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The U.S. Federal Reserve’s balance sheet has been set to decline automatically since 2017, as the central bank has been liquidating funds from its US$ 4 trillion in Treasury bonds and mortgage-backed securities. As holdings matured, the Fed refrained from reinvesting them. This amounts to US$ 40 billion in monetary tightening monthly. Meanwhile, interest rates have slowly, and continuously, risen. The maturation of these Fed assets could exert upward pressure on long-term yields.

Mortgage rates, applications, and home sales have been falling, likely due to the rising rates. While rates are still historically low, U.S. President Trump has criticized the rate hikes. However, the Fed has no interest in changing course, and rates are set to continue to rise. According to Fed meeting minutes, “The Chairman suggested that the Committee would likely resume a discussion of operating frameworks in the fall.”

The size and content of the Fed balance sheet going forward will be a point of discussion for Chairman Jerome Powell. While there is no end in sight for the Fed’s plans to tighten economic policy, changing conditions may warrant further examination. With the U.S. stock market thriving, there is no indication that tightening has had a material impact on the economy. However, conventional wisdom asserts that the Fed will raise rates “until something breaks.” Market commentators have also suggested that, in the event of an emergency, the Fed will have a harder time stepping in due to the size of its balance sheet. A large part of the Fed’s monetary strategy is based around communications, and Fed-watchers have made a habit of hanging on every word. The Fed announced a shrinking balance sheet well in advance, and made gradual moves in that direction. The process has been smooth thus far. The Fed’s tightening will reach its peak, US$ 50 billion, in October. It is unclear exactly how much stimulus is still needed in the economy to reach the Fed’s 2% inflation target. The Fed’s easing policies have been criticized for the lopsided benefits they provided, more for Wall Street than Main Street. However, the easing will reduce their role in the market.

The End of Maiden Lane I

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QIA Gets a New CEO

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Sheikh Abdullah Bin Mohammed Al-Thani exited as CEO of the Qatar Investment Authority (QIA). He has been appointed as minister of state by Amiri Order No. (4) of 2018.

Mansoor bin Ebrahim Al-Mahmoud is appointed as the new CEO of QIA. He held positions in various organizations such as CEO of Qatar Development Bank and worked at Qatar Museums.

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SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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