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

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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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Funds and Ownership, KKR Partners with Shinhan Financial

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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norwegian Government Recommends SWF Remains at Central Bank

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There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.

Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”

Some Central Bank Recommendations

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Invesco Buys OppenheimerFunds for $5.7 Billion

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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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