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

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”.

Concerns Raised at Potential BlackRock Takeover of CalPERS’ Private Equity

The California Public Employees’ Retirement System (CalPERS) has been analyzing options on what to do with its massive US$ 26 billion private equity program. The pension system has embraced the mantra of reducing cost, reducing complexity and reducing risk, the hallmark of its program called “INVO 2020”. CalPERS also wants less, but more strategic relationships with external money managers. At one point, CalPERS was contemplating increasing its direct investment staff to model Canadian pension funds such as Canada Pension Plan Investment Board (CPPIB), OMERS and the Ontario Teachers’ Pension plan. The pendulum has begun to swing the other way as reported earlier by SWFI research staff.

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CDP Signs €1.7 Billion Infrastructure Loan Agreement with Atlantia Group

Cassa depositi e prestiti S.p.A. (CDP) and Atlantia Group’s Autostrade per l’Italia (ASPI) have signed a €1.7 billion loan contract dedicated to upgrading motorways in Italy under concession to ASPI. €1.1 billion will come in the form of a term loan with a 10-year tenure, with the remaining €600 million wrapped up in a five-year revolving loan.

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Sovereign Funds Commit to Integrating Climate-Related Risks at One Planet Summit

Representatives from a number of sovereign wealth funds who collectively govern over US$ 2 trillion in assets came together at the One Planet Summit at the Élysée Palace in Paris in order to discuss what public asset owners can do to incorporate climate change-related risks and opportunities into investment considerations.

The newly formed committee – called the One Planet Sovereign Wealth Fund Working Group – includes as its founding members the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA), Norges Bank Investment Management (manager of Norway’s Government Pension Fund Global), Saudi Arabia’s Public Investment Fund (PIF), and the New Zealand Superannuation Fund.

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