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SWFs and Pensions Plan to Increase Allocation to Smart Beta, Cash, and Private Infrastructure

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According to the quarterly SWFI Global Asset Owner Survey conducted in August 2018, sovereign funds, endowments, and pensions see trade wars and increased protectionism as the biggest tail risk. In addition, the trade war response was the largest response in the last two surveys, showing that sovereign funds and pensions are very concerned about how trade deals will identify winners and losers in the coming months. This survey had the most responses as of any survey. This makes sense as the sample of our survey questionnaires are invested in a myriad of countries that could be big losers (or winners) in the outcome of future trade deals that are reshaping landscapes.

Other tail risks that emerged as secondary concerns from the question include the emerging market debt crisis and China’s shadow banking system.

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$ 1.8 trillion of assets under management.

Subscribers: TO ACCESS the SURVEY, please go to SWFI.COM, or respondents can contact SWFI.

Smart Beta, Cash and Private Infrastructure

According to the responses, sovereign funds and pensions plan to increase allocation to smart beta products, cash, and private infrastructure in the next twelve months. Passive U.S. equities is a big loser in which many are underweighting. There is a preference of active U.S. equities over passive U.S. equities in terms of allocation. In early September, e-commerce giant Amazon passed US$ 1 trillion in market capitalization. Some media pundits are calling it a phoenix from its previous state as a unicorn. Sovereign funds have shown through SWFI’s transaction database a preference for technology companies like Amazon, Alphabet, and Facebook, despite the survey showing that technology companies are in a bubble.

The likability of hedge funds also increased surprisingly. The increase in a cash preference signals institutional investors taking equity gains and waiting for distressed opportunities. Private infrastructure is bubbling hot too. For example, recently I Squared Capital, an infrastructure-focused private equity firm founded by former Morgan Stanley executives, raised US$ 7 billion for its ISQ Global Infrastructure Fund II.

According to Michael Maduell, president of SWFI, “Chief investment officers are growing anxious as each month passes historical norms. How do we position ourselves for the next downturn and what will be the catalyst? At the same time, many portfolio managers see room for markets to expand; however, security selection will play a larger role for alpha-seeking, sophisticated investors.”

Fixing up Balance Sheets

In a stark change, more sovereign funds and pensions want listed companies to improve their balance sheet structures (repaying debt and pension solvency), versus increasing capital spending. Capital spending was a key popular choice in every survey except for this one. Pension CIOs see a rising interest rate environment, and healthy balance sheets will be even more important.

Risks Toward Financial Market Stability

The asset owners see geopolitical risk as the largest risk towards financial stability, similar to the June survey answer, but more people also saw business cycle risk as a major concern compared to previous surveys.

More About the Global Asset Owner Survey

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

PSP Investments and Blue Sky Alternative Investments End Strategic Partnership Agreement

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Blue Sky Alternative Investments Limited informed Canada’s Public Sector Pension Investment Board (PSP Investments) that it agreed to terminate its strategic agreement effective March 31, 2019. In December 2017, Blue Sky Alternative Investments forged an agreement with PSP Investments to assist in committing capital in a number of agricultural investments.

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Yield-Hungry Korean Insurance Capital Backs TSX Broadway

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Mirae Asset Daewoo Co., Ltd., the Seoul-based investment banking firm, has provided a US$ 375 million loan for a redevelopment in New York’s Times Square. It joins L & L Holding Company, Maefield Development, and Fortress Investment Group who are bringing the development known as TSX Broadway to life. The building is at 1568 Broadway in Manhattan. TSX Broadway, a US$ 2.5 billion project when all equity financing is added in, will allow for renovations and expansion of the 46-storey building. An LED screen, which is not an uncommon sight in the Big Apple, will wrap around the corner of the tower. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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OFFICIALS: Saudi Crown Prince Denies Interest in Acquiring Manchester United

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The Saudi Arabian government dispelled rumors that Saudi Crown Prince Mohammed bin Salman will acquire football club Manchester United. However, Saudi Arabia’s Public Investment Fund (PIF) had talks regarding sponsorship with the football club. Manchester United signed a partnership deal with Saudi Arabia’s General Sports Authority in 2017.

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