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Michael Maduell – 2013 Intersection of Sovereign Funds and Capital Markets

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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Sovereign Funds Commit to Integrating Climate-Related Risks at One Planet Summit

Representatives from a number of sovereign wealth funds who collectively govern over US$ 2 trillion in assets came together at the One Planet Summit at the Élysée Palace in Paris in order to discuss what public asset owners can do to incorporate climate change-related risks and opportunities into investment considerations.

The newly formed committee – called the One Planet Sovereign Wealth Fund Working Group – includes as its founding members the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA), Norges Bank Investment Management (manager of Norway’s Government Pension Fund Global), Saudi Arabia’s Public Investment Fund (PIF), and the New Zealand Superannuation Fund.

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bcIMC-Backed Hayfin Capital to Buy CLO Specialist Kingsland Capital

London-based Hayfin Capital Management agreed to buyout New York-based Kingsland Capital Management, LLC, a U.S. collateralized loan obligations (CLO) and leverage credit manager. The transaction permits Hayfin Capital an opening to the U.S. CLO market. Hayfin Capital does not currently manage any live CLOs.

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CPPIB Participates in Peruvian PE Restructuring

The Canada Pension Plan Investment Board (CPPIB) is part of an investor group that is helping restructure a number of vehicles that are managed by Peru-based Enfoca, a private equity firm.

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