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The Sovereign Wealth Fund Lending Game

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On December 8th, Morgan Stanley tactically announced plans to eliminate 1,200 jobs. 470 of those jobs belonged to bond and commodity traders and salespeople. More bad news. In the third quarter, Morgan Stanley posted a 42% fall in fixed income trading revenue. The investment bank is taking a US$ 150 million charge in its fourth quarter. Morgan Stanley, Credit Suisse and other banks are changing their stripes, shedding banking in favor for wealth management, especially in Asia. Besides prolonged low interest rates and stricter banking regulations, part of this business trend can be blamed by more asset owners becoming their own banks. The era where large investment banks control and command fixed income markets is slowly fading, as colossal pensions and sovereign investors can ramp up internal capabilities and generate yield from their massive balance sheets. Today, the sovereign wealth fund market is over US$ 7 trillion in assets.

By getting into the nitty-gritty lending game, whether its real estate debt, structured credit or high-yield loans, wealth funds are able to enhance return in their fixed income allocations.

On the other side of the world, sovereign funds are exploring simplified, inexpensive channels of generating yield in their portfolios. By getting into the nitty-gritty lending game, whether its real estate debt, structured credit or high-yield loans, wealth funds are able to enhance return in their fixed income allocations. For example, countries like Denmark face years of negative interest rates; rates being held down below zero since the middle of 2012. Is the Bank of Canada next to partake in negative interest rate chatter? Norway’s massive sovereign fund is requesting permission from its government to expand its universe of investments – hoping to add a 5% allocation in infrastructure and doubling real estate exposure to reach 10% of assets. In their letter to the Norwegian Finance Ministry, the fund also hinted the possibility of allocating to renewable energy infrastructure, a lure for many environmental-minded policymakers. Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), publicly stated to the media that negative interest rates in some countries are posing hurdles for the fund’s investment strategy. Norway’s wealth fund is stuck; it has been reducing bonds over the past five years, while growing allocation to listed equities and fixed income.

The Amazing GIC

Sovereign funds have been able to generate alpha in yield strategies. Unconstrained Asian SWFs like GIC Private Limited can be seen as a source of lending capital to many parties. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway GPFG Excludes More Companies, 2 For Coal and 1 for Working Conditions in Vietnam

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Norway Government Pension Fund Global will not be able to invest in three more companies as decided by Norges Bank. In a statement by Norges Bank Investment Management (NBIM), Texwinca Holdings Co, Evergy Inc, and Washington H. Soul Pattinson & Co Ltd., were removed from the sovereign wealth fund’s portfolio.

Texwinca Holdings Co is a Hong Kong-based investment holding company that is engaged in activities such as knitted fabric and apparel businesses. Norges Bank excluded this firm over its view on an unacceptable risk that the company is responsible for serious or systematic human rights violations. Texwinca owns 50% of the shares in Megawell Industrial Ltd, making it that company’s largest shareholder. Megawell owns the garment factories Hugo Knit and Kollan in Vietnam as wholly owned subsidiaries. Texwinca claims that it does not have a controlling influence over Megawell and is not responsible for the working conditions at Megawell’s factories in Vietnam, according to a finding by Norway GPFG’s Council on Ethics.

Evergy is an investor owned electric utility headquartered in Kansas City, Missouri, United States. Evergy is the largest electric company in Kansas. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.

Washington H. Soul Pattinson and Company Limited is an Australian conglomerate founded by businessman Lewy Pattinson. Norges Bank excluded this firm based on an assessment of the product-based coal criterion.

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CPPIB and Insight Invest $500 Million in Swiss Data Recovery and Backup Company

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Baar, Switzerland-based Veeam Software locked in US$ 500 million in investment from Insight Venture Partners and the Canada Pension Plan Investment Board (CPPIB). Founded in 2006, Veeam Software is a provider of data management solutions, such as backup and data recovery solutions, for the public and private cloud. Veeam Software claims it has roughly US$ 1 billion in sales last year and more than 325,000 customers. Insight Venture Partners acquired a minority stake in Veeam back in 2013.

Pursuant to the terms of this investment, Insight Venture Partners’ Managing Director, Michael Triplett, will join Veeam’s board of directors.

Gordon R. Caplan, Co-Chairman of Willkie Farr & Gallagher LLP, served as advisor for the deal.

Some of Veeam’s competitors include Palo Alto-based Rubrik, which in January raised US$ 261 million in a Series E funding round from investors such as Khosla Ventures, Greylock Partners, Lightspeed Venture Partners, IVP, and Bain Capital Ventures.

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Korea’s NPS Plants Stewardship Responsible Unit

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The National Pension Service of Korea formed a division to comply with its adoption of stewardship principles that were revealed in July 2018. The pension promoted its 9-member team of responsible investment professionals to the global responsibility investment and governance division in late December 2018. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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