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Survey Reveals Global Asset Owners See Stock Market Bubble as Biggest Tail Risk

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According to the quarterly SWFI Global Asset Owner Survey conducted in November 2017, large sovereign funds and pensions take the view that a stock market bubble is currently the biggest tail risk. This is in contrast to our August survey which revealed a blended view of risk including trade wars and U.S. fiscal policy errors. Numerous pundits in Western financial media, post Trump’s electoral win, have called for a stock market bubble; however, many these alarm bells have been ringing since the global financial crisis, and have, thus far, been premature. The quarterly survey targets sovereign funds, pensions, endowments, superannuation funds, foundations, government funds, family offices and other asset owners. Totaled estimated survey sample size was over US$ 2 trillion of assets under management, more than the inaugural survey in August. This round all respondents have a long-term orientation.

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Here are some key findings:

    The majority of respondents see long equities as the most crowded trade – specifically in long high-quality equities and long U.S. technology equities.

    Investors were right on U.S. tax reform – still biggest driver of equity prices in the next 6 months. Treasury bond yields were a clear second, while oil prices were no longer a driver of equity prices.

    Surprisingly, 31.82% of respondents plan to decrease allocation to exchange-traded funds (ETF) in the next 12 months.

    Again, a majority of respondents plan to increase allocation to Europe, ex-UK in the next 12 months. In a smaller percentage, some respondents plan to increase allocation to the U.K. as well.

    (More Cash to Sit on Sidelines) 41.65% of respondents plan to increase allocation to cash in the next 12 months, versus 33.34% of respondents in August 2017.

    Again, a majority of respondents see geopolitical risk as the greatest factor against financial market stability.

According to Michael Maduell, president of SWFI, “Sovereign wealth funds, pensions and superannuation funds have already priced in U.S. tax reform and are growing cautious of a potential stock market bubble.”

Maduell continues, “Geopolitical risks remain a top concern with regard to financial stability for global asset owners. Risks in the Middle East, North Korea and potential political disturbances in the West weigh on the minds of chief investment officers globally. The survey results clearly demonstrate that asset owners are being more selective, holding more cash, while jumping on opportunities in Europe.”

More About the Global Asset Owner Survey

This is SWFI’s second quarterly survey for asset owners. To participate in the next quarterly survey, CONTACT research@swfinstitute.org.

SWFI intentionally excludes 3rd party asset and fund managers in this survey. As an independent authority on asset owners, SWFI feels that it is uniquely qualified and strategy agnostic to show a true “lay of the land”.

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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