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KKR and Singapore Sovereign Fund Form Indian RE Lending Platform

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India dealsSingapore’s GIC Private Limited and private equity giant KKR have formed a non-banking financial company to provide loan capital for the growing real estate sector in India. This entity will be a lending platform utilizing structured credit. Since the inauguration of Indian Prime Minister Narendra Modi, institutional investor capital from sovereign wealth funds, pensions and private equity funds have raced back to the Indian property market.

Learn more about GIC Private Limited

GIC Private Limited is providing investment capital for the lending platform. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Rising Interest Rates Impact Sovereign Wealth Strategies

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Sovereign wealth funds are paying closer attention to the U.S. Federal Reserve as it enters fresh territory under Jay Powell. Powell’s decisions are impacting foreign exchange holdings globally, as central bankers adjust to a newer environment of policy normalization. The United States is not the only country raising interest rates. The Philippines, Argentina, Indonesia, India, Czech Republic, Ukraine and Pakistan are just some emerging market countries that have raise interest rates.

Global institutional investors like BlackRock are concerned that the U.S. dollar could grind higher. In times of increased geopolitical or financial tensions, the greenback is seen as a safe haven by many central banks, sovereign funds and foreign public funds. July marks the 110th month of expansion, a streak that is one year away from becoming the longest in U.S. history. Stronger economic data – with U.S. gross domestic product hitting 4.1% for the second quarter of 2018, rising interest rates, and bids to lower U.S. trade deficits, are making sovereign funds rethink asset allocation or at least shift more assets out of markets like Turkey, South Africa and Brazil. The Turkish lira fell further in August, prompting the country’s central bank to take drastic action. The fallen lira sent jitters across emerging markets and to banks in Southern Europe who have exposure to Turkey. What are sovereign wealth funds doing now?

On the fixed income front, sovereign funds are paying much closer attention to their government bond holdings, keeping a close eye on countries that rely heavily on external funding. Shorter duration bonds and inflation-linked debt can act as a safeguard against rising rates and inflation. Sovereign funds, like Singapore’s GIC Private Limited, are recognizing that global equity returns are less synchronized, thus there is a move to identify select countries and regions being conducted for strategic asset allocation for 2019 and beyond. A stronger greenback, positive U.S. corporate earnings, and rising trade tensions between the U.S. and China are becoming a boon for active equity managers and smart beta funds, as public funds are requesting enhanced levels of skills in navigating stock selection. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Senator Warren Seeks Greater Federal Government Controls over Big Business

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U.S. Senator Elizabeth Warren of Massachusetts introduced a bill to mandate large U.S. corporations to obtain a federal charter and give up board seats to company employees. Taking a page from the German economic playbook, the legislation called the Accountable Capitalism Act, seeks to bring more stringent federal government controls onto large American corporations. This law would apply to both public and private U.S. companies. Countries like China, India and Germany have embraced a variety of forms of state capitalism.

Federal Charter for Large U.S. Businesses

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More U.S. Institutional Investors are Adopting ETFs, While Smart Beta Rises

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New research out of Deutsche Bank indicates that exchange-traded funds (ETFs) are primarily funded by U.S. institutional investors, accounting for US$ 2 trillion of the US$ 3.3 trillion total allocated to the funds. This is a 40 % increase from the numbers just two years ago, in 2016. Deutsche Bank strategist Chin Okoro notes, “Institutions are increasingly using ETFs as vehicles for more sophisticated portfolio solutions.”

The SPDR S&P 500 ETF (SPY) is the most popular, with US$ 185 billion of its investment coming from institutional investors. Other in-demand ETFs include the iShares Core S&P 500 ETF (IVV), iShares MSCI EAFE ETF (EFA), Vanguard FTSE Developed Markets ETF (VEA), and Vanguard FTSE Emerging Markets ETF (VWO). Smart beta funds are also gaining ground as the ETF universe matures.

Smart Beta Continues to Rise

Smart beta funds or factor-based ETFs, a type of fund that uses alternative index construction rules instead of the typical market cap-weighted index strategy, are also gaining adoption by pensions, sovereign wealth funds and insurance companies. At the end of 2017, smart beta funds had surpassed US$ 1 trillion in assets for the first time. The low cost of managing the funds makes them especially attractive for investors. A smart beta fund’s offering of intentionally-chosen, diversified holdings could spell trouble for active managers. Recently, Janus Henderson CEO Richard “Dick” Weil suggested as much on Bloomberg TV, and he vowed to make the case that actively managed funds could still provide a higher return than passive funds. Goldman Sachs, State Street, Franklin Templeton, and Fidelity International have all launched smart beta funds in recent years.

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