The leaders of Pacific island nations are voicing their opinion on the negative effects of climate change. Many fear rising sea levels will damage their territorial integrity, economy and livelihood. One of the islands, Kiribati, has one of the oldest sovereign wealth funds in the modern age. UN Secretary-General Ban Ki-moon gave a speech touching on that financing will be essentially to advance the support of small island developing states with regard to climate change. Carl Linaburg, chairman of the Sovereign Wealth Fund Institute (SWFI), spoke at the United Nations on June 29th, during the Small Island Developing States (SIDS) event, to talk about institutional investors and climate change. Carl Linaburg invented the Linaburg-Maduell Transparency Index (LMTI), a way of objectively measuring the transparency of sovereign wealth funds with Michael Maduell in 2008.
However, when focusing specifically on the size of the sovereign investor market, he said, “US$ 7.2 trillion dollars is quite a bit of money that could make an impact on climate change for the better or for the worst.”
Linaburg commented on upcoming regulatory changes regarding investment and climate change being brought down by the European Commission. Linaburg mentioned the European Union (EU) wants to reduce its greenhouse gas emissions by a minimum threshold of 40% by 2030. Globally, pension funds like CalPERS, CalSTRS and Korea’s National Pension Service (NPS) are examining how climate change and regulation related to it could impact their portfolios. In addition, asset managers running massive amounts of capital for pensions and wealth funds are taking notice.
Long-Term Institutional Investors Playing a Large Role Combating Climate Change
The SWFI chairman discussed how sovereign wealth funds, pensions and family offices can play a role in the “grand scheme of things.” Linaburg talked about platforms being formed institutional investors such as sovereign funds, foundations, pensions and other long-term investors looking at green investments. However, when focusing specifically on the size of the sovereign investor market, he said, “US$ 7.2 trillion dollars is quite a bit of money that could make an impact on climate change for the better or for the worst.”
Linaburg highlighted, “Another thing that we need to understand about sovereign wealth funds is that these are, indeed, profit vehicles. They are initially set up to provide for their future economies, and typically they are run by former financial gurus who are good at producing a return on investment. These individuals have a lot of pressure not only from their governmental owners but also from the public to produce a positive return on their portfolios. The key to approaching sovereign wealth funds with initiatives like climate change is finding a middle ground.”
He mentioned the growing movement of the Portfolio Decarbonisation Coalition, taking a strong foothold in Europe. This coalition was founded by Amundi, AP4, CDP and the United Nations Environment Programme Finance Initiative. It is a multi-stakeholder initiative that aims to drive greenhouse gas emissions down by assembling institutional investors to gradually embrace the decarbonisation of their portfolios. Linaburg spoke about hearing the speech of Mats Andersson, CEO of AP4, at the SWFI’s Institute Fund Summit 2015 conference in Seoul in April, talk about the buffer fund’s approach on becoming a low-carbon institutional investor.
Sovereign wealth funds are gradually playing a bigger role in the green investment world. Norway’s Government Pension Fund Global has made allocations to environmental investment mandates, while funds like the New Zealand Superannuation Fund (NZSF) have made direct investments in companies like Bloom Energy. According to the SWFI’s Sovereign Wealth Fund Transaction Database, even Gulf funds like Mubadala and the China Investment Corporation have made big bets in renewables.
The Los Angeles Fire and Police Pensions (LAFPP), a smaller pension compared to its larger peers such as the Los Angeles County Employees Retirement Association, is considering forming a direct real estate investment strategy that would be managed internally. LAPFF staff requested the pension’s real estate consultant The Townsend Group to explore the feasibility of creating an in-house real estate managed portfolio.
The problem with fiat money is that it is backed by governments and countries, subject to the whims of policymakers versus a tangible item like gold. Russia has sold nearly US$ 100 billion worth of Treasury bills, bought gold, yuan, and other non-U.S. dollar currencies, and saved a significant allocation that may be earmarked for Bitcoin. These moves are intended to help Russia evade U.S. sanctions. Vladislav Ginko, an economist at the Russian Presidential Academy of National Economy and Public Administration, noted that the government is working to “protect its national interests” since fewer U.S. dollars are expected to flow into the country in exchange for oil and gas. Ginko estimates the crypto investment at US$ 10 billion. If enacted, Bitcoin could spike on the purchase. Purchases could begin at any time. The Central Bank of Russia has not yet discussed its intentions. However, six months after making any financial transactions, the bank publishes them. If Russia were to carry out the plan, it would swallow over 15 % of the world’s Bitcoin.
Financial technology companies continue to built out platforms to service institutional clients. For example, San Francisco-based Anchorage, cryptocurrency custody service, raised US$ 17 million in a Series A round that was led by Andreessen Horowitz and joined by Khosla Ventures, Max Levchin (co-founder of PayPal), Elad Gil, Mark McCombe of Blackrock (Senior Managing Director, Head of the Americas region), and AngelList’s Naval Ravikant.
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Public Sector Pension Investment Board (PSP Investments) made an investment into Newport Beach, California-based Alliant Insurance Services, Inc. In addition, funds managed by Stone Point Capital LLC also made an investment into Alliant Insurance Services. Post-transaction, funds managed by Stone Point Capital LLC will remain Alliant’s largest institutional shareholders while the company’s management and producers will continue to own the majority of the firm.
Alliant Insurance Services provides property and casualty, workers’ compensation, employee benefits, surety, and financial products and services to clients nationwide, including public entities, tribal nations, healthcare, energy, law firms, real estate, construction, and other industry groups.
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