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Norway’s Sovereign Wealth Fund Set to Drop Oil Exploration Stocks

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In November 2017, Norges Bank advised the country’s finance ministry to exclude the oil and gas sector from the benchmark index for Norway Government Pension Fund Global, with the idea of reducing the oil price risk associated with the Norway’s wealth. Norway’s Ministry of Finance prompted this action by naming an expert group to examine the idea. However, the expert group concluded that Norway’s GPFG should remain invested in energy stocks. Opponents of the fossil fuel industry continued to lobby Norwegian politicians, while media headlines influenced public opinion on the issue.

In an updated decision on advice of Norges Bank and an expert group, the Norwegian government is proposing to eliminate companies classified as exploration and production companies within the energy sector from Norway’s sovereign wealth fund to reduce the aggregate oil price risk in the Norwegian economy. Based on the idea of a permanent oil price decline, Norway’s Ministry of Finance believes that selling companies which explore and produce oil and gas is more accurate compared to selling a broadly diversified energy sector. Some of Norway’s GPFG top equity holdings include Royal Dutch Shell, BP and other oil major companies. According to a press release by Norway’s Finance Ministry, “Companies classified as exploration and production companies by the index provider FTSE Russell will be excluded from the GPFG’s benchmark index and investment universe. The proposal will serve to reduce the aggregate concentration risk associated with this type of activities in the Norwegian economy. Like the advice from Norges Bank, this assessment does not reflect any specific view on the oil price, future profitability or sustainability of the petroleum sector. This assessment is thus independent of the government’s current petroleum policy, which remains unchanged.”

Norway’s finance ministry takes the position that the energy sector is broad and is made up of companies that participate in renewable energy activities. The ministry states, “It is anticipated that almost all of the growth in listed renewable energy over the next decade will be driven by companies that do not have renewable energy as their main business. The Fund should be able to participate in this growth.”

In addition, the Norwegian government does not plan to sell shares in the State’s Direct Financial Interest (SDFI) or in Equinor (formerly known as Statoil) in order to reduce the Norway’s oil price risk.

The phasing out of energy exploration stocks will be gradual, according to the finance ministry.

Companies in the GPFG’s equity portfolio as of 31 December 2018, which by the index provider FTSE Russell are classified as belonging in the subsector “0533 Exploration & Production” in the sector “0001 Oil & Gas”.

Advantage Oil & Gas Ltd
AltaGas Ltd
Anadarko Petroleum Corp
Apache Corp
ARC Resources Ltd
Arrow Exploration Corp
Australis Oil & Gas Ltd
Bangchak Corp PCL
Bashneft PJSC
Baytex Energy Corp
Beach Energy Ltd
Birchcliff Energy Ltd
Brightoil Petroleum Holdings Ltd
Cabot Oil & Gas Corp
Cairn Energy PLC
California Resources Corp
Callon Petroleum Co
Caltex Australia Ltd
Canacol Energy Ltd
Canadian Natural Resources Ltd
Carrizo Oil & Gas Inc
Cenovus Energy Inc
Centennial Resource Development Inc/DE
Cheniere Energy Inc
Chesapeake Energy Corp
Cimarex Energy Co
CNOOC Ltd
CNX Resources Corp
Concho Resources Inc
Continental Resources Inc/OK
Cooper Energy Ltd
Crescent Point Energy Corp
CVR Energy Inc
Delek US Holdings Inc
Denbury Resources Inc
Devon Energy Corp
Diamondback Energy Inc
Empresas COPEC SA
Encana Corp
Enerplus Corp
EOG Resources Inc
EQT Corp
Esso Thailand PCL
Etablissements Maurel et Prom
Extraction Oil & Gas Inc
Formosa Petrochemical Corp
Fuji Oil Co Ltd
Geopark Ltd
Gibson Energy Inc
Gran Tierra Energy Inc
Gulfport Energy Corp
Gulfsands Petroleum PLC
Hankook Shell Oil Co Ltd
Hibiscus Petroleum Bhd
HollyFrontier Corp
Horizon Oil Ltd
Idemitsu Kosan Co Ltd
IGas Energy PLC
Indian Oil Corp Ltd
Inpex Corp
International Petroleum Corp/Sweden
IRPC PCL
Jagged Peak Energy Inc
Jerusalem Oil Exploration
K&O Energy Group Inc
Karoon Energy Ltd
Kelt Exploration Ltd
Keyera Corp
Kosmos Energy Ltd
Kunlun Energy Co Ltd
Laredo Petroleum Inc
Liquefied Natural Gas Ltd
Lundin Petroleum AB
Mammoth Energy Services Inc
Marathon Oil Corp
Maridive & Oil Services SAE
Matador Resources Co
Motor Oil Hellas Corinth Refineries SA
Murphy Oil Corp
Naphtha Israel Petroleum Corp Ltd
New Zealand Oil & Gas Ltd
New Zealand Refining Co Ltd/The
Newfield Exploration Co
Noble Energy Inc
Nostrum Oil & Gas PLC
Novatek PJSC
NuVista Energy Ltd
Oasis Petroleum Inc
Obsidian Energy Ltd
Occidental Petroleum Corp
Oil & Natural Gas Corp Ltd
Oil India Ltd
Oil Refineries Ltd
Oil Search Ltd
Ophir Energy PLC
Orsknefteorgsintez OAO
Paramount Resources Ltd
Parex Resources Inc
Parsley Energy Inc
Paz Oil Co Ltd
PBF Energy Inc
PDC Energy Inc
PetroVietnam Gas JSC
Peyto Exploration & Development Corp
Pioneer Natural Resources Co
PrairieSky Royalty Ltd
Premier Oil PLC
President Energy PLC
ProPetro Holding Corp
PTT Exploration & Production PCL
PTT PCL
QEP Resources Inc
QGEP Participacoes SA
Range Resources Corp
Reach Energy Bhd
Refineria La Pampilla SAA Relapasa
Reliance Industries Ltd
San-Ai Oil Co Ltd
Santos Ltd
Saras SpA
Saratovskiy Neftepererabatyvayuschiy Zavod PJSC
Senex Energy Ltd
Seven Generations Energy Ltd
SK Innovation Co Ltd
SM Energy Co
Societatea Nationala de Gaze Naturale ROMGAZ SA
S-Oil Corp
Southwestern Energy Co
SRC Energy Inc
Sundance Energy Australia Ltd
Surya Esa Perkasa Tbk PT
Susco PCL
Targa Resources Corp
Tethys Oil AB
Thai Oil PCL
Toa Oil Co Ltd
TORC Oil & Gas Ltd
Tourmaline Oil Corp
Tullow Oil PLC
Tupras Turkiye Petrol Rafinerileri AS
Ultra Petroleum Corp
United Energy Group Ltd
Valero Energy Corp
Vermilion Energy Inc
Whitecap Resources Inc
Whiting Petroleum Corp
WildHorse Resource Development Corp
Woodside Petroleum Ltd
WPX Energy Inc
Yanchang Petroleum International Ltd

Source: Ministry of Finance, Norway

Yale’s Love Affair with Venture Capital Overshadows Other Asset Classes

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Yale’s US$ 29.4 endowment has earned staggering returns of 7.4% per year over the past 10 years, racing past its benchmark and adding US$ 6.5 billion to the fund. In the year ending June 30 2018, Yale earned 12.3%. Yale’s success is due to active management, and an unconventional approach to investing, at least from the perspective of a university endowment. Yale is overweight venture capital and real estate, which has paid off handsomely over the last 10 years. Many properties throughout the country have returned to, or surpassed, their pre bubble-era prices. Yale has also actively participated in leveraged buyouts. Yale is underweight U.S. equities and its fixed income holdings are low, as is cash on hand.

Yale’s annual report notes, “The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power.” Perhaps earning their Princeton Review # 3 ranking in 2018, Yale’s commitment to thinking outside the box is responsible for their recent investment philosophy: “Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management.” Alternative investments have been gaining steam among major players in the global markets, including US$ 6.5 trillion investment manager Blackrock Inc. Blackrock plans to open a new European alternative asset headquarters in Paris.

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eFront Finds a Home at BlackRock

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BlackRock Inc. entered into an exclusive agreement to acquire eFront, a French software provider of risk management products for the alternative investments industry. Asset management firms are worried about margins and have increasingly acquired service provider firms to buffer revenues. BlackRock sells the Aladdin (Asset, Liability, Debt and Derivative Investment Network) platform, which is one of the largest portfolio operating systems in the investor community. BlackRock’s offer is to pay US$ 1.3 billion in cash for 100% of the equity of eFront. The seller of eFront is private equity firm Bridgepoint.

Bridgepoint acquired eFront in January 2015 in a transaction totalling approximately €300 million. In 2006 eFront listed on the Alternext Paris market of NYSE Euronext (ALEFT) and was taken private in 2011 by Francisco Partners. eFront was founded in 1999 by Olivier Dellenbach.

According to the press release, “The combination of eFront with Aladdin, BlackRock’s investment operating platform used by more than 225 institutions around the world, will set a new standard in investment and risk management technology.”

BlackRock is funding the eFront acquisition through a combination of existing corporate liquidity and debt.

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CDPQ Supports Domestic AI Fund

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Institutional investor Caisse de dépôt et placement du Québec (CDPQ), which works primarily on behalf of pension funds and insurance plans, is opening a new fund dedicated to Québec businesses that specialize in AI, or artificial intelligence. Available funds are slated at US$ 250 million for the enterprise. The commercialization of AI seems to be a natural fit for CDPQ, “Since Montréal is emerging as a global beacon of excellence in artificial intelligence, we need to enhance our offering and ramp up the financial and development support we provide AI businesses through the various stages of their growth,” according to Executive Vice President of Quebec and Global Strategy, Charles Émond. Émond aspires to see AI spread throughout “all sectors of our economy.” The AI fund will be run by CDPQ’s Venture Capital and Technology team. They will look for companies that are already doing well in the sector.

Another program is targeting early stage organizations. Mila Quebec AI Institute, a research and development organization founded by three universities, is building a new complex to help facilitate CDPQ’s goals. The new complex will house early-stage AI companies. CDPQ is especially interested in companies that can accelerate their growth and enter markets quickly, providing speedy returns. There is a social component, whereby companies will be required to contribute to Mila. Michael Sabia, President and Chief Executive Officer of CDPQ, noted, “With this partnership, la Caisse is pursuing its commitment to helping Québec businesses in this new economy thrive and expand.”

Keywords: Caisse de depot et placement du Quebec

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