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Real Estate: A Powerful Sovereign Wealth Fund Investment Trend

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In September this year, Norway’s sovereign wealth fund, in one giant swoop paid US$ 1.5 billion for minority interests in two Boston properties and the former Citigroup Center in Manhattan. The amount of capital floating en route for core real estate is astonishing, more and more sovereign funds are allocating toward properties. In fact, for public institutional investors, real estate is one of the top sectors of direct investment.

The Growth of Direct Sovereign Wealth Fund Transactions

sovereign wealth fund deals
Source: Sovereign Wealth Fund Transaction Database – Data in Billion USD

Real Estate Figures: Sovereign Wealth Fund Transaction Database Data

According to the Sovereign Wealth Fund Transaction Database, comparing the period of September 30, 2014 going back 12 months, total direct public investor transactions in real estate were US$ 36 billion compared to US$ 23.22 billion for transactions starting at September 30, 2013 going back 12 months. Limiting the database universe to sovereign wealth fund direct transactions exclusively, by comparing figures in similar periods, the figures are US$ 29.11 billion for 2014 versus US$ 21.15 billion for 2013. Currently, with regard to the Sovereign Wealth Fund Transaction Database, sovereign wealth funds make up the majority of transactions, thus the number of total public institutional investor transactions in properties should be much higher.

Looming 2014 Sovereign Wealth Fund Trends in Real Estate

    1. More Joint Ventures, Finding Local Partners
    2. Tax Issues, Large Minority Interests
    3. Other Key Cities, Besides Gateway Cities
    4. Luxury and Hotel Properties
    5. Indian Real Estate (Modi)

A resilient second wave of Asian institutional capital is bypassing London, flooding bits of continental Europe. In addition, Gulf sovereign wealth funds such as the Kuwait Investment Authority, Qatar Investment Authority and the Abu Dhabi Investment Authority have been active investors in continental Europe. This year, Constellation Hotel Holdings, controlled by the Qatar Investment Authority (QIA), agreed to pay €330 million for the InterContinental Paris – Le Grand and allocated €60 million for future hotel renovations. This can also be said of the large Canadian pension investors like the CPPIB and OMERS.

Another Bubble?

Sovereign wealth funds and pensions are at risk of a supply drought in core properties. With higher real estate fund commitments and deployment amounts, an unprecedented level of demand is being created by large public institutional investors. This trend could be exacerbated if U.S. defined contribution retirement accounts make the push into real estate assets.

Why BlackRock Angled the EU Toward a Massive Supranational Pension Fund

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BlackRock is the world’s largest asset management firm and the company wields tremendous political power whether operating in the United States, Mexico, and parts of Europe. Before the populist wave that led to Brexit, BlackRock bet large in Europe by increasing headcount and lobbying efforts. By 2015, BlackRock CEO Larry Fink proposed the formation of a cross-border personal pension fund for Europe. Fink was keenly aware of the Capital Markets Union project that was revealed in July 2014 by European Union Commission President Jean-Claude Juncker. For BlackRock, why compete in each eurozone country when you can possibly win a mandate for the whole pie of Europe. The European pension fund market is hyper-competitive for asset management firms. Other asset managers like Vanguard have lobbied Brussels over issues like the cross-border distribution of funds, but data shows that BlackRock is far more active than its U.S. peers.

EU’s Definition of PEPP

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Malaysia’s Federal Land Development Authority Seeks to Restructure

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Malaysia’s Federal Land Development Authority (FELDA), a government agency, is looking to restructure its investment holdings in a bid to reduce debt. The restructuring on the real estate side started in the middle of 2017. The government agency wants to lower its debts of 8.03 billion MYR (US$ 1.94 billion) down to 6.5 billion MYR. The restructuring could take over two years.

FELDA is seeking to dispose of assets which includes real estate in London. FELDA is an investor in student housing in London through its main unit called Felda Investment Corporation (UK properties owned by FIC UK Properties Sdn Bhd). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Former Iran Central Bank Governor Banned from Leaving Country

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Iran remains in a very fragile financial state as more Iranian bank loans appear to delinquent, while the currency continues to lose value against the U.S. dollar. State-run Tasnim news agency reported that Valiollah Seif, the former Governor of the Central Bank of Iran, is banned from leaving Iran. Seif is under investigation by the Iranian government over possible corruption in the currency market. Some of the central bank’s deputies have been arrested. Abdolnaser Hemmati replaced Valiollah Seif as central bank governor in July 2018. Valiollah Seif was dismissed from his post as governor.

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