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The Art of Liquidity Investing for Sovereign Funds

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Several sovereign wealth funds invest a portion of their assets to capture and harvest the illiquid premium. Hence the improved aggregate demand for private equity, real estate, and infrastructure investments. Given their long-term nature, more and more SWFs are searching for means to capture this premium and capitalize on it.

Take for instance Europe’s largest sovereign wealth fund, the Norwegian Government Pension Fund – Global (GPFG) which allocates most of its assets into fixed income and public equities. Norway’s GPFG has greater liquidity compared to most other similarly-sized sovereign wealth fund peers, university endowments, and larger pension plans. The fund has taken strides to invest in more illiquid assets such as its gravitation towards institutional real estate.

Other SWFs have been more aggressive by using the illiquid premium such as Singapore’s GIC which makes direct company investments into companies and the Qatar Investment Authority.

Over the long haul, some studies have shown that illiquid assets can generate amazing returns; this was seen in the early endowment model that many private university endowments followed. Sovereign investors need to advance with caution as the illiquid premium cost is contingent on the liquidity demands of liabilities. Unfortunately in 2008-2009, the crisis caused severe strain and turmoil rendering some fire sales and generating losses. Illiquid assets can be a major burden for investors. Sovereign funds on the other hand, especially ones without contingent liabilities can weather out longer holding periods.

SWFI First Read, September 19, 2018

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QIA Eyes Investment in Chinese Lender Lufax

The Qatar Investment Authority (QIA) is in talks about a possible investment into Shanghai-based Lufax, one of China’s largest online lenders. The seller of the possible stake is China’s Ping An Insurance (Group) Co. Ltd. Lufax’s official name is Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Wealth Funds Back Hotpot Giant

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Japanese Government Capital Provides Initial Life for Texas Bullet Train

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Dallas-based Texas Central Partners, LLC is the developer of a proposed high-speed rail system, dubbed the Texas Bullet Train, between Dallas and Houston. Project costs are estimated between US$ 12 billion to US$ 15 billion. The developer secured US$ 300 million in project loans from Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) and the Japan Bank for International Cooperation (JBIC). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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DOJ Investing Tesla Over Musk Comments

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The U.S. Department of Justice (DOJ) is conducting a fraud investigation over Tesla as its CEO Elon Musk made public statements on twitter. This is a criminal probe. In addition, earlier, SWFI reported the U.S. Securities and Exchange Commission (SEC) is conducting a civil inquiry into Elon Musk regarding his statements.

This all surrounds Musk tweeting in August that he was thinking of taking Tesla private and had “funding secured” for the transaction. Both government authorities are seeing if Musk misled investors and violated federal securities laws with his public statements.

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