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Have Sovereign Funds Embraced Fannie and Freddie’s New Mortgage Babies?

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The answer is a partial yes. State-owned housing behemoths Freddie Mac and Fannie Mae have tapped into two major investment themes. The first theme are asset owners such as sovereign wealth funds and U.S. pensions’ unquenchable desire for fixed income yield. Whereas the likes of large wealth funds such as Singapore’s GIC go direct when investing in yield investments, while some wealth funds with smaller in-house capabilities opt to use intermediaries such as money managers and hedge funds to get this type of exposure. The second theme circles around risk transfer. Fannie Mae and Freddie Mac want to move as much risk as possible into these these mortgage insurance-like products. These new securities which monitor credit events, could expose these investors to lose some or all of their principal if the underlying mortgages default. With wealth funds fixated on yield, these new securities distribute risk of mortgage default to different tranches – sound familiar? Fannie Mae’s has called these products the Connecticut Avenue Securities, while Freddie Mac’s calls them Structured Agency Credit Risk (STACR). Typically for the STACR bonds they are held in 4 structures. M1 and M2 are usually rated and more conservative. M3 is usually not rated. Finally, the riskiest, the Class B bond, is treated as a derivative for U.S. federal income tax purposes in most cases.

Freddie Mac Issued STACR Transactions to Date

Transaction Issuance Date Issuance Volume – USD
STACR 2013-DN1 July 26, 2013 500,000,000
STACR 2013-DN2 November 12, 2013 630,000,000
STACR 2014-DN1 February 12, 20114 1,008,000,000
STACR 2014-DN2 April 9, 2014 966,000,000
STACR 2014-DN3 August 11, 2014 672,000,000
STACR 2014-HQ1 August 11, 2014 460,000,000
STACR 2014-HQ2 September 15, 2014 770,000,000
STACR 2014-DN4 October 28, 2014 611,000,000
STACR 2014-HQ3 October 28, 2014 429,400,000
STACR 2015-DN1 February 3, 2015 880,000,000
STACR 2015-HQ1 March 31, 2015 860,000,000
STACR 2015-DNA1 April 28, 2015 1,010,000,000
STACR 2015-HQ2 June 9, 2015 425,600,000
STACR 2015-DNA2 June 29, 2015 950,000,000
STACR 2015-HQA1 September 28, 2015 872,000,000
STACR 2015-DNA3 November 2015 1,070,000,000
Total   12,114,000,000

 
Source: Freddie Mac filings

Ownership Splits by Investor Type

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GIC Buys Large Stake in Nordic Aviation Capital

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Singapore’s GIC Private Limited, a yield-hungry sovereign investor, invested in Denmark-based Nordic Aviation Capital A/S, becoming a significant minority shareholder. Other shareholders in Nordic Aviation Capital include EQT VI Limited fund, KIRKBI Invest (wealth origins tied to Legos), and Martin Møller, the founder of Nordic Aviation Capital. EQT VI will remain the largest shareholder of Nordic Aviation Capital. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Trump Wants Pharma Companies to Disclose Drug Prices in Advertisements

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U.S. President Trump is progressing on plans to mandate pharmaceutical companies to reveal their prices in drug advertisements. “The drug industry remains resistant to providing real transparency around their prices, including the sky-high list prices that many patients pay,” Health and Human Services Secretary Alex Azar said in a statement. “So while the pharmaceutical industry’s action today is a small step in the right direction, we will go further.”

The U.S. Health and Human Services Department would require pharmaceutical companies to include drugs’ sticker prices in their video advertisements. This would be similar to how drug companies disclose the laundry list of side effects.

Increasingly, sovereign funds like Temasek Holdings have backed mid-stage pharmaceutical companies and other therapies, while market investors like Norway’s GPFG have large holdings in listed pharmaceutical companies.

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Kazatomprom Treads Closer to IPO

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Kazatomprom is the world’s biggest uranium producer, accounting for around 20% of production market share. The company is moving forward on floating up to a 25% company stake for its planned initial public offering in London and Astana, Kazakhstan. Kazatomprom’s IPO plans are subject to market conditions. The global market price of uranium generated significant price gains year-to-date through almost three quarters. So far, during 2018, the uranium spot price has moved from US$ 20 per pound to US$ 27 per pound.

Kazatomprom’s sole shareholder is Samruk-Kazyna. Samruk-Kazyna would retain at least a 75% stake in the company.

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Credit Suisse and JPMorgan are joint global coordinators and joint bookrunners for the share offering. China International Capital Corporation, Halyk Finance, and Mizuho International plc were joint bookrunners.

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