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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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BlackRock Contemplates Stake in Eurizon

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Asset management giant BlackRock is contemplating purchasing a 30% ownership stake in Intesa SanPaolo’s asset management unit called Eurizon Capital SGR S.p.A. BlackRock is keen on growing its technology business and increase market adoption of its Aladdin platform.

Intesa has been working with UBS to seek out strategic options for Eurizon. Intesa is keen on maintaining control over Eurizon.

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SWFI First Read, June 22, 2018

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JPMorgan Fund Buys 40% of Oxford Properties’ French Portfolio

A fund advised by JP Morgan Asset Management committed €400 million in Oxford Properties’ French portfolio. Essentially, Oxford Properties sold a 49.9% non-managing interest in 32 Rue Blanche, 92 Avenue de France and Paris Bastille. Oxford Properties made its maiden investment in Paris in 2014 when it acquired 32 Rue Blanche.

Oxford Properties is the real estate unit of OMERS.

Temasek Explores Further Cash Commitments to FirstCry

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DOL Fiduciary Role is Struck Down by Fifth Circuit Court of Appeals

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The U.S. Court of Appeal, Fifth Circuit, confirmed a March 15th decision to strike down the U.S. Department of Labor’s (DOL) fiduciary rule. The fiduciary rule is a series of seven different rules that broadly interpret the term “investment advice fiduciary” and redefine exemptions to provisions concerning fiduciaries that appear in the Employee Retirement Income Security Act of 1974 (ERISA). The 5th U.S. Circuit Court of Appeals overturned a decision by a Dallas federal court that had upheld the DOL fiduciary rule.

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