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Survey Reveals Global Asset Owners See Trade Wars as Biggest Tail Risk

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According to the quarterly SWFI Global Asset Owner Survey conducted in February 2018, large sovereign funds and pensions take the observation that trade wars and increased protectionism is currently the biggest tail risk. This is a shift from the stock market bubble as the biggest tail risk, which was revealed in December 2017. U.S. President Donald Trump announced tariffs on steel and aluminum as part of his “America First” strategy in which, he aims to get better trade agreements between countries to improve trade deficits between major trading partners. Critics contend this could create a retaliatory trade war, including Trump’s own National Economic Council Director Gary Cohn, who resigned on March 6, 2018. Proponents of the tariffs argue that the U.S. entered into trade deals far less favorable to U.S. companies in the past to help out other countries grow and become more stable.

According to the Office of U.S. Trade Representative, “U.S. goods and services trade with the EU totaled nearly $1.1 trillion in 2016. Exports totaled $501 billion; Imports totaled $592 billion. The U.S. goods and services trade deficit with the EU was $92 billion in 2016.

U.S. goods and services trade with China totaled an estimated $648.5 billion in 2016. Exports were $169.8 billion; imports were $478.8 billion. The U.S. goods and services trade deficit with China was $385 billion in 2016.”

The quarterly survey targets sovereign funds, pensions, endowments, superannuation funds, foundations, government funds and other asset owners. Totaled estimated survey sample size was over US$ 1.2 trillion of assets under management.

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Here are some key findings:

    The majority of respondents see long equities as the most crowded trade – specifically in Long Russell or S&P Index. Long U.S. technology equities were a close second.

    Now that U.S. tax reform is baked in, the majority of respondents view Treasury bonds yields as the biggest driver of equity prices in the next 6 months.

    Holding Steady – 45.5% of respondents plan to increase allocation to Europe ex-U.K. – a percentage and trend that has held steady in the last two quarterly surveys.

    25% of respondents plan to underweight cash, meaning investors are keen to deploy capital

According to Michael Maduell, president of SWFI, “It is too early to properly wargame the effects of President Trump’s action on tariff policy, but it has created a level of anxiety among the global institutional investor class.”

More About the Global Asset Owner Survey

This is SWFI’s third 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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