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Sovereign Wealth Funds Anticipate Possible American Infrastructure Bank

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Barack Obama

In our estimate, sovereign wealth funds would look forward to the creation of an American infrastructure bank. The primary reason for this is the infrastructure fund investment returns would most likely surpass treasuries and other current fixed income investments. It is essential to note that not all infrastructure investments are created equal. By observing current infrastructure investment patterns around the globe, sovereign wealth funds and other governmental investors prefer infrastructure in energy, utilities, and transportation, over more speculative types like green projects and social infrastructure.

U.S. President Barack Obama’s speech tonight is outlining his future plan for jobs in America. With high U.S. unemployment rates, the current situation is daunting. American public sector projects are facing major funding issues and will have to rely on outsider capital. Thirty years of underinvestment in American infrastructure has created tremendous issues for the United States. In fact, other developed nations spend a great deal more percentage wise on public infrastructure. One proposal out there is the creation of an American infrastructure bank. The bank would most likely receive a capital infusion of federal dollars to the tune of US$ 60 billion to provide infrastructure financing in transportation. If the proposal includes investment opportunities to sovereign wealth investors and other investors, it could alleviate congressional passage complication and lessen the fiscal impact on U.S. debt.

Developing infrastructure in energy and transportation is a white hot asset class for sovereign wealth funds and public pensions. This $4.7 trillion dollar sovereign investor class already represents a major source of foreign capital for the United States. Sovereign wealth funds are an active participant in American stocks, private equity, and real estate.

Instead of recapitalizing financial institutions, funding infrastructure would provide numerous advantages to both investor and the U.S. economy.

Infrastructure as an asset class is a classic inflation hedge, plus it is long-term in nature. It can be a suitable investment for governmental investors with enough capital and funds with a long-term investment horizon. This inelastic asset class attracts investors searching for stable and predictable cash flows. Among the big infrastructure players in the sovereign wealth fund space include the Abu Dhabi Investment Authority, China Investment Corporation, New Zealand Superannuation Fund, and the Government of Singapore Investment Corporation.

One key advantage for sovereign wealth funds by creating an infrastructure bank in the United States is that it will lower political investment risk. When the Abu Dhabi Investment Authority invested in Chicago Parking Meters it created a bit of political controversy in Chicago. One way sovereign investors can circumvent political risk in public infrastructure investment is participating in club deals, bringing multiple foreign parties to the table. This alleviates and distributes political risk among the participating governmental entities and helps paint a better picture of their commercial investment intentions.

Furthermore, the infrastructure bank could lower project risk by creating a fund to invest in multiple infrastructure projects. This pooled approach would increase project diversity. In addition, if the Federal government would guarantee the cash flow payments, there would most likely be increased sovereign investor interest and participation.

2009 Grades – US Infrastructure

  • Aviation D
  • Bridges C
  • Dams D
  • Drinking Water D-
  • Energy D+
  • Hazardous Waste D
  • Inland Waterways D-
  • Levees D-
  • Public Parks and Recreation C-
  • Rail C-
  • Roads D-
  • Schools D
  • Solid Waste C+
  • Transit D
  • Wastewater D

Source: American Society of Civil Engineers

President Trump to Slap 10% Tariffs on $200 Billion in Chinese Goods, Increase to 25% Year-End

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U.S. President Trump in a bid to realign the global flows of trade surpluses and deficits moved to put 10% tariffs on US$ 200 billion in Chinese goods. The duties amount will go up to 25% at the end of 2018. China has already demonstrated and threatened to retaliate against the new trade tariffs.

President Trump’s first tariff shot against China started in July 2018, going after US$ 50 billion worth of goods.

“We stand ready to negotiate with China any time if they are willing to move towards serious talks to remedy trade problems,” White House National Economic Council Director Larry Kudlow commented to the press in New York on September 17, 2018.

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BNY Mellon Hires Shamik Dhar as Chief Economist

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BNY Mellon Investment Management hired Shamik Dhar as chief economist, effective October 1, 2018. This is a new position and Dhar will be based in London. According to the press release, “In the newly created role, Shamik will be responsible for conducting proprietary research and analysis, in order to develop economic commentary. He will act as the primary spokesperson for BNY Mellon IM on matters relating to global macroeconomics, geopolitics and capital markets.”

Previously, Dhar was Chief Economist since September 2014 at the UK government’s Foreign and Commonwealth Office. Dhar began his career as an Economic Assistant at HM Treasury, the UK government’s economic and finance ministry. He also had stints at Aviva Investors and the Bank of England.

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Saudi Arabia’s PIF Raises $11 Billion Loan

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Saudi Arabia’s Public Investment Fund (PIF) completed its massive US$ 11 billion international syndicated loan facility. According to documents, the cash will be used for “general corporate purposes.” The loan was structured as a club loan. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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