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Dodd-Frank Ups Probability in Increased Swap Margin Requirements for SWFs

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The Dodd-Frank Wall Street Reform and Consumer Protection Act is now a U.S. federal statute and signed into law by U.S. President Barack Obama.  Now that the law is in place, U.S. agencies such as the Commodities Futures Trading Commission (CFTC) and the Federal Reserve Board are drafting proposals under newly minted regulatory powers, especially in the area of swap margin requirements and classifying swap participants.  Counterparty risk cannot be understated and it furthered the slogan “too big to fail”.  The agencies are proposing to include sovereign funds as “financial end users” or “financial entities”.  If this proposal passes, this will increase their margin requirements, essentially mandating sovereign wealth funds to pledge their assets to back American financial institutions.   This brings further issues to light, since some sovereign funds may need legislative or committee action to enlarge the amount of pledged assets to meet margin calls.  There is also political risk that foreign governments might counteract by providing similar legislation against the U.S. government.

Under the proposal, they state:

“The Commission notes that these types of sovereign counterparties do not fit easily into the proposed rule’s categories of financial and nonfinancial entities. In comparing the characteristics of sovereign counterparties with those of financial and nonfinancial entities, the Commission preliminarily believes that the financial condition of a sovereign will tend to be closely linked with the financial condition of its domestic banking system, through common effects of the business cycle on both government finances and bank losses, as well as through the safety net that many sovereigns provide to banks.

Such a tight link with the health of its domestic banking system, and by extension with the broader global financial system, makes a sovereign counterparty similar to a financial entity both in the nature of the systemic risk and the risk to the safety and soundness of the covered swap entity. As a result, the Commission preliminarily believes that sovereign counterparties should be treated as financial entities for purposes of the proposed rule’s margin requirements.”

Source: U.S. Commodities Futures Trading Commission

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PSP Investments and Blue Sky Alternative Investments End Strategic Partnership Agreement

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Blue Sky Alternative Investments Limited informed Canada’s Public Sector Pension Investment Board (PSP Investments) that it agreed to terminate its strategic agreement effective March 31, 2019. In December 2017, Blue Sky Alternative Investments forged an agreement with PSP Investments to assist in committing capital in a number of agricultural investments.

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Yield-Hungry Korean Insurance Capital Backs TSX Broadway

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Mirae Asset Daewoo Co., Ltd., the Seoul-based investment banking firm, has provided a US$ 375 million loan for a redevelopment in New York’s Times Square. It joins L & L Holding Company, Maefield Development, and Fortress Investment Group who are bringing the development known as TSX Broadway to life. The building is at 1568 Broadway in Manhattan. TSX Broadway, a US$ 2.5 billion project when all equity financing is added in, will allow for renovations and expansion of the 46-storey building. An LED screen, which is not an uncommon sight in the Big Apple, will wrap around the corner of the tower. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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OFFICIALS: Saudi Crown Prince Denies Interest in Acquiring Manchester United

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The Saudi Arabian government dispelled rumors that Saudi Crown Prince Mohammed bin Salman will acquire football club Manchester United. However, Saudi Arabia’s Public Investment Fund (PIF) had talks regarding sponsorship with the football club. Manchester United signed a partnership deal with Saudi Arabia’s General Sports Authority in 2017.

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