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ESTIMATE – Sovereign Funds Experienced $16.6 Billion in Net Losses from GFC Bank Bailouts

Was it worth it? For a select group of sovereign funds the consensus answer is clearly “no” from a financial standpoint regarding tens of billions spent on bailing out financial institutions during the global financial crisis (GFC). Many of these institutional investors incurred losses from these lifeline investments.

SWFI estimates that US$ 56.48 billion was directly invested by sovereign funds during the global financial crisis regarding the subprime bailouts. At May 2017, SWFI estimates that in total, these wealth funds combined have experienced a net loss of US$ 16.58 billion. SWFI believes the net loss range could be as high as US$ 20 billion to as low as US$ 12.5 billion.

In early 2007, sovereign wealth funds started getting “real attention” from the financial press. By 2008, financial pundits had referred to sovereign funds as a new financial superpower and that caught the attention of bank CEOs and policymakers. Once banks started to panic in the early stages of the crisis, wealth funds were looked at as a potential alternative to domestic government money. Banks such as UBS, Merrill Lynch, Barclays and Citigroup had received capital lifelines from sovereign funds. For example, Singapore’s GIC Private Limited backed UBS, believing in the franchise value of its investment banking business. Years later, UBS pivoted toward wealth management and in May 2016, GIC had further sold down its ownership in the Swiss banking giant. In fact, GIC had sold some 93 million current common shares of UBS, an equivalent of 2.4% of the outstanding shares and voting rights.

At May 2017, SWFI estimates that in total, these wealth funds combined have experienced a net loss of US$ 16.58 billion based on internal calculations.

Years after the crisis, the sovereign investors involved in these deals were less hopeful in getting their money back, as the banks they had bailed out faced greater regulatory burdens from new laws enacted and a string of expensive lawsuits stemming from the subprime mortgage debacle. This was not the case for all sovereign fund subprime bailout investments, some wealth funds actually made a profit.

Subprime Bank Bailout Breakout – Net Loss

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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.


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