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Sovereign Wealth Funds React Differently on EU’s Russian Sanctions

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Sovereign Wealth Funds and Russia

Sovereign wealth funds in recent years have made significant investment strides into Russia – betting on Russian real estate, bonds and equities. Russia is one of the BRICS. Norges Bank Investment Management (NBIM), the body that manages Norway’s sovereign wealth, has invested in Russian share sales and other companies within Russia. VTB, one of Russia’s state-owned banks, had participation from three major sovereign wealth funds as cornerstone investors in its US$ 3.3 billion share offering in 2013. The China Investment Corporation (CIC) has committed capital to a myriad of Russian partnerships, funds and companies. For example, the CIC took stakes in Polyus, a gold miner and Uralkali, a Russian potash fertilizer business. Furthermore, the Russian Direct Investment Fund (RDIF) which is tasked to co-invest in opportunities with institutional investors into Russia, has helped bring more sovereign wealth investment into the country.

The Russian Government has spent considerable efforts building economic relations with the Middle East, East Asia and Central Asia.

EU and US Sanctions

VTB Group’s US$ 1.5 billion loan deal will probably be canceled. European banks are fearful to entangle themselves in risky deals. The United States received US$ 8.97 billion by imposing a fine on BNP Paribas SA. BNP Paribas engaged in deals that violated sanctions against Sudan, Iran and Cuba. It was the biggest fine ever paid by a bank in a sanctions case.

On July 29, 2014, European Union members enacted a series of targeted sanctions against Russia. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Cryptocurrencies Creep into the Middle East

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Banking behemoth J.P. Morgan Chase disclosed its own digital currency called JPM Coin. The digital token will be used to settle payments between clients. JPM Coin will be backed by physical U.S. dollars and be based off Quorum. Quorum is J.P. Morgan’s private Ethereum-based chain. JPM Coin plans to compete with Ripple, which created XRP, another digital currency that is used for settlements. Ripple’s main target market is cross-border payments and remittances.

The Central Bank of the United Arab Emirates and the Saudi Arabian Monetary Authority have unveiled their plans for Aber, an interbank digital currency. Both banks have indicated that Aber will be limited to financial settlements using distributed ledger technologies. It will be rolled out on a probational basis, and used by select banks within the two countries. A date for rollout has not yet been declared. A joint statement hinted at a broader application of the currency in the days ahead. If “no technical obstacles are encountered, economic and legal requirements for future uses will be considered.”‏ Blockchains and Distributed Ledgers technologies will be employed. The plan is for ‘Proof-of-Concept’ testing, which involves studying and fully comprehending the ways modern technologies can achieve practical applications. The digital currency has the potential to become a reserve system for central payments.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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CPPIB Inks Partnership Vehicle with La Française and its Shareholder CMNE

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La Française and Canada Pension Plan Investment Board (CPPIB) formed a strategic partnership for the launch of a real estate investment and development vehicle: Société Foncière et Immobilière du Grand Paris. The joint venture between CPPIB (80%) and Caisse Fédérale du Crédit Mutuel Nord Europe (CMNE) (20%), La Française’s shareholder, will invest in major real estate projects linked to the Grand Paris infrastructure in the Greater Paris area. The parties will initially allocate €387.5 million in equity to the venture. The partnership will target regeneration and infrastructure-led investments.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norges Bank Governor Voices Opinion on Relaxing SWF Withdrawals over Specific Uses

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Øystein Olsen, the Governor of Norges Bank, which oversees the Norway Government Pension Fund Global (GPFG), voiced his opinion on the Norwegian government’s plans to alter the rules that regulates the country’s SWF withdrawal rules in certain circumstances. The coalition government led by Norwegian Prime Minister Erna Solberg wants to relax the limits on SWF withdrawals in specific cases. Norway’s government seeks to raid the fund to pay for the replacement of four major state buildings impacted by a terrorist attack and a crashed Royal Norwegian Navy frigate (KNM Helge Ingstad).

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