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Rio Tinto Smacked Hard for Inflating Value of Mozambique Coal Assets

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Rio Tinto Group has been charged with fraud by the U.S. Securities and Exchange Commission (SEC) and fined US$ 36 million by Britain’s Financial Conduct Authority (FCA) for hiding losses on the Mozambican coal business Riversdale Mining Ltd. Bought by Rio Tinto in 2011 for US$ 3.7 billion dollars under the new name Rio Tinto Coal Mozambique, the business was later sold to International Coal Ventures Private Limited in 2014 for a mere US$ 50 million dollars after numerous setbacks severely eroded the value of the acquisition. Some of Rio Tinto’s largest shareholders are Goldman Sachs, State Farm Auto Insurance and Franklin Resources Inc.

The SEC complaint, filed in a federal court in Manhattan, alleges that former Rio Tinto chief executive Tom Albanese, and former Rio Tinto chief financial officer Guy Elliott, ignored numerous warnings in 2010 from Rio Tinto’s internal evaluation team regarding assumptions about the asset’s production capacity, coal quality, and plans to inexpensively transport coal from the site via barge. They then pitched the acquisition to Rio Tinto’s board without disclosing these potentially “show stopping” risks and the deal was finalized in August 2011.

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US Treasury Sec Mnuchin May Have More Sanctions for Turkey

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U.S. Treasury Secretary Mnuchin revealed the United States is preparing more Turkey sanctions. This stems over the issues with an American pastor in Turkey. Turkey’s lira, has fallen to record lows recently.

The week before, U.S. President Trump announced the doubling of tariffs on Turkish steel and aluminium to 50 and 20 percent, respectively. Turkish president Recep Tayyip Erdoğan has called for a boycott of electronics products of the United States, which includes iPhones (a smartphone product of Apple).

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Scott Keller Returns to T. Rowe Price to Head up EMEA

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Scott Keller returns to T. Rowe Price as head of global investment management services for Europe, the Middle East and Africa from January 1, 2019. Keller is currently at UBS Global Asset Management, working in the Asia Pacific region, heading efforts in the bank’s institutional and intermediary distribution. Keller joined UBS in 2014. Before UBS, Keller was at T. Rowe Price.

Scott Keller is replacing Peter Preisler at T. Rowe Price. Preisler exited T. Rowe Price in August 2017.

At UBS, Nick Trueman will replace Scott Keller.

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Rising Interest Rates Impact Sovereign Wealth Strategies

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Sovereign wealth funds are paying closer attention to the U.S. Federal Reserve as it enters fresh territory under Jay Powell. Powell’s decisions are impacting foreign exchange holdings globally, as central bankers adjust to a newer environment of policy normalization. The United States is not the only country raising interest rates. The Philippines, Argentina, Indonesia, India, Czech Republic, Ukraine and Pakistan are just some emerging market countries that have raise interest rates.

Global institutional investors like BlackRock are concerned that the U.S. dollar could grind higher. In times of increased geopolitical or financial tensions, the greenback is seen as a safe haven by many central banks, sovereign funds and foreign public funds. July marks the 110th month of expansion, a streak that is one year away from becoming the longest in U.S. history. Stronger economic data – with U.S. gross domestic product hitting 4.1% for the second quarter of 2018, rising interest rates, and bids to lower U.S. trade deficits, are making sovereign funds rethink asset allocation or at least shift more assets out of markets like Turkey, South Africa and Brazil. The Turkish lira fell further in August, prompting the country’s central bank to take drastic action. The fallen lira sent jitters across emerging markets and to banks in Southern Europe who have exposure to Turkey. What are sovereign wealth funds doing now?

On the fixed income front, sovereign funds are paying much closer attention to their government bond holdings, keeping a close eye on countries that rely heavily on external funding. Shorter duration bonds and inflation-linked debt can act as a safeguard against rising rates and inflation. Sovereign funds, like Singapore’s GIC Private Limited, are recognizing that global equity returns are less synchronized, thus there is a move to identify select countries and regions being conducted for strategic asset allocation for 2019 and beyond. A stronger greenback, positive U.S. corporate earnings, and rising trade tensions between the U.S. and China are becoming a boon for active equity managers and smart beta funds, as public funds are requesting enhanced levels of skills in navigating stock selection. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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