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Michael Maduell – 2013 Intersection of Sovereign Funds and Capital Markets

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Michael Maduell, President, Sovereign Wealth Fund Institute

Michael Maduell, President, Sovereign Wealth Fund Institute

2013 has been a fantastic year for the Sovereign Wealth Fund Institute. We want to thank our sponsors, members, clients, subscribers and readers for participating and consuming our information daily in this fast-paced and evermore demanding space. Additionally, our SWFI membership program is gaining traction with some of the largest asset managers.

From the start of 2008 until the end of 2013 (December), Sovereign Wealth Fund assets grew by 87.4%; this is a massive surge of public investor capital.

In 2014, we will be rolling out new solutions and innovative products catering to our demanding client base. One of these products will make asset managers’ lives easier, while providing extensive analysis and peer review for asset owners. Among other activities, we are planning to execute on additional events, increase research coverage and grow new portals of intelligence.

With that being said, I wanted to highlight a few thoughts about 2013 and how 2014 could play out.

Size of the Sovereign Fund Market

The Sovereign Wealth Fund Institute covers nearly all types of public asset owners in terms of events, news and research. Frankly speaking – sovereign wealth funds have surpassed US$ 6 trillion in assets. From the start of 2008 until the end of 2013 (December), Sovereign Wealth Fund assets grew by 87.4%; this is a massive surge of public investor capital.

2012 Sovereign Wealth Funds vs. Pension Market Size

Investor Class Billions USD
Total US Pension Assets 16,851
Total SWF Assets 5,198 (2013 – Over US$ 6 trillion)
Total UK Pension Assets 2,736
Total Australia Pension Assets 1,555
Total Canada Pension Assets 1,483
Total Global Pension Assets 29,754

Source: Towers Watson Global Pension Assets Study 2013, Sovereign Wealth Fund Institute (SWF Data)

This new normal is not a regular environment for investing, but people have adapted, and, quite possibly, have done so at their own detriment.

Excess Capital and Consequence

Excess capital has deluged markets, pushing up asset prices – a serious consequence of central bank quantitative easing (QE) and bailouts. New money is basically being printed and used to purchase primarily government and government-backed securities on the open market. Analyzing the monetary base of the United States, one can view tremendous growth in M2. From the start of 2003 until November 2013, M2 has grown 89.5%, or approximately US$ 5.2 trillion.

Monetary Base: Sum of currency in circulation and reserve balances

M1: Sum of currency held by the public and transaction deposits at depository institutions

M2: M1 plus savings deposits, small-denomination time deposits and retail money market mutual fund shares
Source: Federal Reserve

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China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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