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Sovereign Funds Had Bet on QE and IT WORKED

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As financial equity markets further roiled during the precipitous fall of Lehman Brothers, institutional investors realized they would be facing a new landscape for the next decade. Central banks quickly pumped money into the global financial system, hoping to stave off a calamity. A number of sovereign funds took advantage and tactically allocated resources into specific markets of listed equities and distressed assets. Some funds like the Abu Dhabi Investment Authority got stung backing U.S. financial institutions like Citigroup or the Korea Investment Corporation’s lackluster investment in Merrill Lynch. By analyzing sovereign wealth fund transactions, allocation percentages and general trends over the past five to seven years, a clear majority of sovereign wealth funds pushed capital toward countries that participated in significant quantitative easing. According to the Sovereign Wealth Fund Transaction Database, from 2008 to 2014, sovereign wealth funds directly invested US$ 102 billion in the United States.

Sovereign funds that allocated to the U.S. when the Federal Reserve intervened by engaging in massive QE measures, performed higher than many SWFs that preferred greater allocation to emerging markets.

The effects of accommodative monetary policy worked very well for wealth funds like Australia’s Future Fund that sat on cash and then allocated big time to developed markets. From early 2009, the S&P 500 index plummeted around 700, eventually the broad stock market average reached new record peaks above 1,900. Performance clearly partially-attributed to the Federal Reserve injecting US$ 85 billion per month into Treasuries and mortgage-backed bonds, pushing down interest rates. These measures increased bond and stock prices in Western developed markets.

Again, funds like the New Zealand Superannuation Fund (NZSF) allocated more toward developed markets, while funds (a number of the Gulf funds) that placed bets in emerging markets had drags in performance. However, even with the gulf-based sovereign investors, allocation percentage-wise was greater in developed markets versus emerging markets.

New Zealand Superannuation Fund – Geographic Allocation

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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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