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Push for open SWFs risks investment shift

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According to the Reuters, “Leading sovereign funds formed the International Working Group of Sovereign Wealth Funds in 2008, announcing a set of 24 principles and best practices, known as the Santiago Principles, last October. The group — whose members include the United Arab Emirates, Kuwait, Singapore, China, Korea, Russia and Norway — meets once a year to exchange views on issues of common interest and the next gathering is due in October in Baku, Azerbaijan. Gary Smith, head of central bank, supranational and SWF business at BNP Paribas Investment Partners, warns that an excessive push for transparency, coupled with recent poor performance, could lower the risk appetite of SWFs and encourage them to favor safer instruments such as bonds.

‘Following the whole push toward transparency, funds opened themselves up for a monitoring process which did not exist,’ Smith said.

‘We have transparency problems for them. The consequences are that these guys are being marked to market on a daily basis by domestic constituents. It’s uncomfortable, particularly when the assets under management shrink.’

Sponsoring governments therefore need to spell out the mandate of their SWFs with a clearer investment horizon — thereby allowing them to ride out short-term portfolio fluctuations and protecting them from domestic criticism.

‘Obviously we believe transparency is a good thing. The problem of transparency is — daily performance, daily this, daily that — that we create an obsession which often detracts from what you are trying to achieve from a particular portfolio,’ said John Green, global head of business development at Investec.

‘There should be governance structures, transparency, disclosure but you don’t want to drive the investment strategies through public opinion,” said Green, whose clients include African official institutions.'”

read more: Reuters

Maiden Lane I Ends, Federal Reserve Aims to Shrink Balance Sheet

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The U.S. Federal Reserve’s balance sheet has been set to decline automatically since 2017, as the central bank has been liquidating funds from its US$ 4 trillion in Treasury bonds and mortgage-backed securities. As holdings matured, the Fed refrained from reinvesting them. This amounts to US$ 40 billion in monetary tightening monthly. Meanwhile, interest rates have slowly, and continuously, risen. The maturation of these Fed assets could exert upward pressure on long-term yields.

Mortgage rates, applications, and home sales have been falling, likely due to the rising rates. While rates are still historically low, U.S. President Trump has criticized the rate hikes. However, the Fed has no interest in changing course, and rates are set to continue to rise. According to Fed meeting minutes, “The Chairman suggested that the Committee would likely resume a discussion of operating frameworks in the fall.”

The size and content of the Fed balance sheet going forward will be a point of discussion for Chairman Jerome Powell. While there is no end in sight for the Fed’s plans to tighten economic policy, changing conditions may warrant further examination. With the U.S. stock market thriving, there is no indication that tightening has had a material impact on the economy. However, conventional wisdom asserts that the Fed will raise rates “until something breaks.” Market commentators have also suggested that, in the event of an emergency, the Fed will have a harder time stepping in due to the size of its balance sheet. A large part of the Fed’s monetary strategy is based around communications, and Fed-watchers have made a habit of hanging on every word. The Fed announced a shrinking balance sheet well in advance, and made gradual moves in that direction. The process has been smooth thus far. The Fed’s tightening will reach its peak, US$ 50 billion, in October. It is unclear exactly how much stimulus is still needed in the economy to reach the Fed’s 2% inflation target. The Fed’s easing policies have been criticized for the lopsided benefits they provided, more for Wall Street than Main Street. However, the easing will reduce their role in the market.

The End of Maiden Lane I

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QIA Gets a New CEO

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Sheikh Abdullah Bin Mohammed Al-Thani exited as CEO of the Qatar Investment Authority (QIA). He has been appointed as minister of state by Amiri Order No. (4) of 2018.

Mansoor bin Ebrahim Al-Mahmoud is appointed as the new CEO of QIA. He held positions in various organizations such as CEO of Qatar Development Bank and worked at Qatar Museums.

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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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