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SWFs to External Managers, Not Just About Performance

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publicfundmonitor_exploringBottom line, if a fund manager is not performing in the long-run, meaning losing money or failing to at least meet the benchmark, there is a good chance the mandate will be terminated. Performance is usually the number one factor of how external managers are rated among public investors. It is hard to sell a non-performing manager to a board or council committee.

In the age of advanced financial products and services, external managers are going the distance to please their largest accounts. Good performance is not enough; money managers have been offering value-added services to their clients in terms of asset allocation, risk management, and knowledge sharing. In fact, many large asset managers and banks offer training to monetary authorities, sovereign wealth funds, and other long-term public investors. This willingness to share insight and processes increases business transparency.

Common Qualitative Factors Common Quantitative Factors
Client Service Performance
Firm Ownership Investment Style
Firm Growth Prospects Risk to Portfolio
Human Resources  
Investment Approach  
Business Risk Issues



Improved client servicing is paramount, especially in down markets. This is a major differentiating factor. Key deal breakers for external managers usually include a lack of consistent client communications. Public investors are under pressure from their boards on hitting their return targets, bad performance coupled with a flawed communication strategy is a recipe for being “black-listed”.

A change in key management or culture is also cause for external manager termination.

Official institutions and sovereign wealth funds will continue to award mandates, especially in areas where they lack resources to do it themselves. In 2000, the Central Bank of Brazil began to start using external managers when the bank had US$ 35 to 50 billion to allocate. The bank also has a program that works on a three-year performance cycle.

Last, many sovereign investors especially with passive mandates are concerned with performance consistency. Weighting return consistency would most likely be expected in fixed income or absolute return mandates. Investors like to look at the external manager’s convictions, investment processes, technology and adherence to the mandate.

Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway’s GPFG Banned from Investing in 9 Companies Over Nuclear Weapons

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The recent false alarm caused by a state employee in Hawaii (who was not terminated and reassigned to a new position), triggering the Emergency Alert System message at 8:07 a.m. caused pandemonium in the state. After decades of failure in diplomacy between the United States and North Korea, the threat of a nuclear missile attack has grown since. The states of Alaska and Hawaii are the closest states to North Korea.

Besides the recent news in the world of nuclear missiles, Norges Bank oversees the management of the country’s sovereign wealth fund. The central bank has moved to ban nine companies from the Government Pension Fund Global. In addition, one company has been placed under observation. The Executive Board of Norges Bank’s decisions on exclusion were made on the basis of recommendations from the Council on Ethics. However, before moving to exclude a company, the central bank may consider other options, such as the exercise of ownership rights. In these instances of companies, the board determined that it was appropriate to use other measures in these cases.

The Council on Ethics’ recommendations to exclude:
Risk of severe environmental damage and serious or systematic violations of human rights
Evergreen Marine Corporation (Taiwan) Ltd
Korea Line Corporation
Precious Shipping PCL
Thoresen Thai Agencies PCL

Unacceptable risk of serious or systematic violations of human rights
Atal SA

Over involvement in the production of nuclear weapons
AECOM
BAE Systems
Fluor Corporation
Huntington Ingalls Industries Inc
Honeywell International Inc (already previously excluded)

Placed Under Observation
Pan Ocean Co. Ltd

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Sistema to Pledge Assets to Help Fund Settlement

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The Russian Direct Investment Fund (RDIF) is helping a settlement situation between two Russian economic powerhouses. In January 2018, Sistema, under a settlement, is mandated to pay Bashneft oil company, which is owned by energy behemoth Rosneft, 100 billion roubles (US$ 1.8 billion) by March 30, 2018.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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