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Mainland China Experiencing Slowdown in Wealth Fund Direct Deals

With China experiencing a deceleration in economic growth, heightened geopolitical tensions, and rising risks in the country’s traditional financial sector, wealth fund direct investments have slowed down to a crawl in 2016 compared to 2015.

Direct Transactions into Mainland China by Sovereign Wealth Funds – Billions USD

Source: Sovereign Wealth Fund Transaction Database, Extracted February 7, 2017.

Source: Sovereign Wealth Fund Transaction Database, Extracted February 7, 2017.

Even though there is an abundance of institutional investor capital chasing deals globally, the number of suitable opportunities for these large sovereign investors within China shrunk, as well as deal size. This had required both cash-rich wealth funds and pensions to augment on-the-ground resources across Asia. In reality, overseas wealth funds, at times, are competing against adventurous Canadian pensions, deep-pocketed corporate investors, private equity firms and domestic players when it comes to investing in Chinese emerging companies. Lucrative Chinese initial public offerings are competitive.

While overall direct deals made by wealth funds slightly pulled back in 2016, mainland China suffered a significant reduction in incoming direct sovereign investor capital. According to data from the Sovereign Wealth Fund Transaction Database (SWFTD), wealth funds directly invested US$ 4.05 billion in mainland China in 2016 versus US$ 13.16 billion in 2015. In 2014, the figure was US$ 8.096. The United States was a beneficiary for 2016 when it came to direct sovereign fund transactions. However, according to SWFI Compass, an RFP and opportunity tracking service, external fund mandates toward mainland China were in demand by both wealth funds and pensions across the United States.


Wealth funds are also realigning their Asia portfolios, seeking to lower exposure toward traditional financial institutions, while trying to identify investments in China’s consumer, technology and real estate sectors. In 2015, HIP China Logistics Investments Ltd., a sovereign wealth enterprise of the Abu Dhabi Investment Council (ADIC), kicked in US$ 750 million more toward its joint venture with Prologis Inc. called Prologis China Logistics Venture. Meanwhile, some sovereign funds were selling bank stocks. For example, in early 2017, according to Hong Kong filings, Qatar Investment Authority (QIA) trimmed 3.84 million H shares of Agricultural Bank of China Ltd. The shares were sold at an average price of HK$ 3.26 per share on January 27, 2017. Post-transaction, the QIA has a 11.99% stake in the Agricultural Bank of China from its previous 12% ownership stake.

Despite these headwinds, mainland China is on track to have more initial public offerings from very large Chinese companies. One example is China Reading (also known as Yuewen Group), China’s biggest online publishing and e-book company. China Reading, which is backed by Chinese giant Tencent Holdings, hopes to raise up to US$ 800 million in a 2017 IPO.

Adrian Orr Named Governor of Reserve Bank of New Zealand

NZ Super Fund CEO Adrian Orr is exiting the sovereign fund to take up a new executive role at the country’s central bank. Adrian Orr is becoming the Governor of the Reserve Bank of New Zealand. Orr will officially leave NZ Super in March 2018, effectively starting his 5-year term as central bank governor on March 27, 2018. Adrian Orr is returning to this central bank roots. He was previously a deputy governor at the Reserve Bank of New Zealand.

Catherine Savage, Chair of the Guardians of New Zealand Superannuation, in a news release stated, “I know that in working for the NZ Super Fund Adrian has valued the opportunity to make a contribution to New Zealand highly. The role of Governor of the Reserve Bank will enable him to continue to do this. While we are naturally disappointed to lose Adrian, we congratulate him and the Reserve Bank on his appointment, and wish them both well.”

Orr will take the helm of central bank governor from Grant Spencer, who became acting Governor on September 26, 2017. Grant Spencer was Deputy Governor of the central bank, taking over from Graeme Paul Wheeler, who was central bank governor from 2012 to September 2017. Wheeler was a former Managing Director and former Treasurer at The World Bank.

Orr was nominated numerous times on SWFI’s Public Investor 100 annual ranking.

1. 2013, #22
2. 2014, #16
3. 2017, #3

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Some Asset Owners See Treasury Bond Yields as Factor in Driving Equities

Revealed results from the fourth quarter 2017 SWFI Global Asset Owner survey released in early December shows that majority of institutional investor respondents, which include pensions, sovereign funds and other public funds, believe U.S. tax reform would be the largest driver of equity prices in the next six months. The quarterly survey excludes asset managers and targets asset owners. U.S. President Donald Trump calls the Republican party’s US$ 1.5 trillion tax cut as economic “rocket fuel”.

Treasury Bond Yields and Robust U.S. Job Creation

Even more enlightening was the number two finalist in the question, treasury bond yields, which almost tied U.S. tax reform. Institutional investors are carefully analyzing the figures being released by the U.S. Department of Labor (DOL), as the unemployment rate stayed at 4.1% and payroll numbers continues to improve. The U.S. economy added 228,000 jobs in November 2017, according to DOL data. Post-report the 10-Year U.S. Treasury yield fell lower. Sovereign funds still hold a large portion of investments in liquid fixed income investments, despite noteworthy large-scale infrastructure or buyout deals headlined by financial media.

The majority of Federal Open Market Committee members did not factor in U.S. tax reform in the September projections. The question looms if the U.S. Federal Reserve will keep pace on monetary tightening, as Janet L. Yellen is being pushed out of the chair spot. As Jerome H. Powell awaits in the wings, Yellen’s tenure as Fed chairman is the shortest since G. William Miller, who served from 1978 to 1979. Faster economic growth and better job numbers could lead to more interest rate increases. Depending on the adoption and speed, increased interest rate measures would deeply impact junk bonds and further accelerate the demise of troubled enterprises.

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Bagamoyo Project Revitalized, Oman and China Look to Move Forward

The Government of Tanzania is completing talks with Oman and China over the Bagamoyo Port project in the Bagamoyo Special Economic Zone at a cost of 22.3 trillion Tanzanian shilling (US$ 10 billion). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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