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Improving the Odds on Discovering Skilled Equity Managers

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In the next section of our Chasing Alpha series, we are honing in on selecting skilled equity managers, specifically long-only, active managers. Manager skill can essentially be defined as the fund’s alpha, or benchmark-adjusted expected return. Identifying equity managers that can consistently generate alpha is a Herculean task. Why is this? Once an equity portfolio manager starts generating alpha, that manager or strategy will surely get noticed in this world of informational transparency and gossip. Second, as managers hoard more assets to oversee, the opportunity set for specific strategies gets more challenging. This is why sovereign funds like the Abu Dhabi Investment Authority (ADIA) employ both external fund managers and utilize internal staff on equity portfolios. External fund managers can implicitly or explicitly lend investment theme ideas to their clients. Third, with rapid advances in technology, proliferation of education and intelligence, the competitive advantages of equity portfolio managers can begin to erode as stock selection transforms more into an art versus science for active managers. Access to company management has never been easier in the past decade. Earnings calls and transcripts are recorded through technology providers. This has also led to an increase in concentrated equity strategies among asset owners like Canada Pension Plan Investment Board (CPPIB). But with a little analysis and adopting a multi-pronged approach, institutional investors can increase their luck on finding them.

High-quality investment conferences also permit asset owners to connect with peers, possibly to share success stories.

Baby Steps

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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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