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SWFI First Read, March 13, 2019



Trump Grounds Boeing 737 Max in USA

U.S. President Donald Trump issued an executive order to ground all Boeing 737 Max jets. Trump informed reporters at the White House on March 13, 2019, “We’re gonna be issuing an emergency order of prohibition to ground all flights of the 737 Max 8 and the 737 Max 9 and planes associated with that line.”

This ban would impact three U.S. airlines: United, American Airlines, and Southwest Airlines.

No Deal Brexit Shot Down by UK Lawmakers

U.K. lawmakers shot down a “no-deal” Brexit. This means the U.K. cannot leave the European Union without a Brexit deal in place. There are 16 days left until the official Brexit date. No agreement or extension has been ratified yet. It was a close vote: 312 to 308.

PM May says that there could be a second Brexit referendum, something pro-Brexit advocates have warned about since the initial Brexit vote.

On March 12, 2019, PM May saw her Brexit agreement plan defeated once again. The vote was 242 to 391.

Mastercard Buys Ethoca

Mastercard Incorporated entered into an agreement to acquire Ethoca, a technology provider that helps merchants and card issuers collaborate in real-time to quickly identify and resolve fraud in digital commerce. Terms of the agreement were not disclosed and the transaction is anticipated to close in the second quarter of 2019. Founded in 2005, Ethoca is backed by Spectrum Equity, Pivot Investment Partners, and Difference Capital Financial.

Azelis Acquires Chemroy Canada Holdings

Belgian-based Azelis SA has acquired Brampton, Ontario-based Chemroy Canada Holdings Inc. Chemroy Canada Holdings is a specialty chemicals, plastics, and food ingredients distributor. Azelis is owned by PSP Investments and EQT.

3i Infrastructure Buys Joulz Diensten

3i Infrastructure, part of 3i Group plc, committed approximately €220 million to purchase 100% of Joulz Diensten from Stedin Holding, a Dutch distribution grid operator. Joulz Diensten is a provider of energy infrastructure equipment and services in the Netherlands.

Yale’s Love Affair with Venture Capital Overshadows Other Asset Classes



Yale’s US$ 29.4 endowment has earned staggering returns of 7.4% per year over the past 10 years, racing past its benchmark and adding US$ 6.5 billion to the fund. In the year ending June 30 2018, Yale earned 12.3%. Yale’s success is due to active management, and an unconventional approach to investing, at least from the perspective of a university endowment. Yale is overweight venture capital and real estate, which has paid off handsomely over the last 10 years. Many properties throughout the country have returned to, or surpassed, their pre bubble-era prices. Yale has also actively participated in leveraged buyouts. Yale is underweight U.S. equities and its fixed income holdings are low, as is cash on hand.

Yale’s annual report notes, “The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power.” Perhaps earning their Princeton Review # 3 ranking in 2018, Yale’s commitment to thinking outside the box is responsible for their recent investment philosophy: “Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management.” Alternative investments have been gaining steam among major players in the global markets, including US$ 6.5 trillion investment manager Blackrock Inc. Blackrock plans to open a new European alternative asset headquarters in Paris.

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eFront Finds a Home at BlackRock



BlackRock Inc. entered into an exclusive agreement to acquire eFront, a French software provider of risk management products for the alternative investments industry. Asset management firms are worried about margins and have increasingly acquired service provider firms to buffer revenues. BlackRock sells the Aladdin (Asset, Liability, Debt and Derivative Investment Network) platform, which is one of the largest portfolio operating systems in the investor community. BlackRock’s offer is to pay US$ 1.3 billion in cash for 100% of the equity of eFront. The seller of eFront is private equity firm Bridgepoint.

Bridgepoint acquired eFront in January 2015 in a transaction totalling approximately €300 million. In 2006 eFront listed on the Alternext Paris market of NYSE Euronext (ALEFT) and was taken private in 2011 by Francisco Partners. eFront was founded in 1999 by Olivier Dellenbach.

According to the press release, “The combination of eFront with Aladdin, BlackRock’s investment operating platform used by more than 225 institutions around the world, will set a new standard in investment and risk management technology.”

BlackRock is funding the eFront acquisition through a combination of existing corporate liquidity and debt.

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CDPQ Supports Domestic AI Fund



Institutional investor Caisse de dépôt et placement du Québec (CDPQ), which works primarily on behalf of pension funds and insurance plans, is opening a new fund dedicated to Québec businesses that specialize in AI, or artificial intelligence. Available funds are slated at US$ 250 million for the enterprise. The commercialization of AI seems to be a natural fit for CDPQ, “Since Montréal is emerging as a global beacon of excellence in artificial intelligence, we need to enhance our offering and ramp up the financial and development support we provide AI businesses through the various stages of their growth,” according to Executive Vice President of Quebec and Global Strategy, Charles Émond. Émond aspires to see AI spread throughout “all sectors of our economy.” The AI fund will be run by CDPQ’s Venture Capital and Technology team. They will look for companies that are already doing well in the sector.

Another program is targeting early stage organizations. Mila Quebec AI Institute, a research and development organization founded by three universities, is building a new complex to help facilitate CDPQ’s goals. The new complex will house early-stage AI companies. CDPQ is especially interested in companies that can accelerate their growth and enter markets quickly, providing speedy returns. There is a social component, whereby companies will be required to contribute to Mila. Michael Sabia, President and Chief Executive Officer of CDPQ, noted, “With this partnership, la Caisse is pursuing its commitment to helping Québec businesses in this new economy thrive and expand.”

Keywords: Caisse de depot et placement du Quebec

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