Connect with us

The Sovereign Wealth Fund Lending Game

Published

on

forest_singapore

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. ]

SWFI First Read, May 25, 2018

Published

on

MedInvestGroup Pushes Investment into Russian High-Tech Oncology Centers

The Russian Direct Investment Fund (RDIF) and Mubadala Investment Company have attracted MedInvestGroup, which manages a network of the PET Technology regional oncology and radiological centers, as a strategic investor in the joint management and development of a network of cancer diagnosis and treatment centers. The deal aims to significantly improve the efficiency of the already functional centers in Podolsk and Balashikha. The corresponding agreement was announced today at the St. Petersburg International Economic Forum.

Southern Satellite City and RDIF Reach a Financing Agreement

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

Continue Reading

French Industrial Giants Find Opportunity with RDIF

Published

on

A number of French industrial companies continue to invest within Russia, finding opportunities within the mega country. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Continue Reading

CPPIB Targets 33% in Emerging Markets by 2025

Published

on

The Canada Pension Plan Investment Board (CPPIB) generated a net return after expenses and pension contributions of 11.6% for the fiscal year ended March 31, 2018, versus its reference portfolio of 9.8%. For the reported fiscal year, CPPIB grew its net assets to a new high of C$ 356.1 billion (US$ 277.2 billion), compared to C$ 316.7 from the year previous.

Mark Machin, President and Chief Executive Officer at CPPIB, attributed the performance to the rising tide in public equity markets across most geographies, whose volatility in recent months was buoyed by significant fourth quarter earnings in the fund’s private holdings. Public and private equities, CPPIB’s first and third largest asset classes by exposure at 38.8% and 20.3%, saw estimated returns of 11.4% and 16.1%, respectively. Machin joined CPPIB in 2012 and was moved to the top in June 2016, following the departure of Mark Wiseman. Machin has a knack for the Asian region, being CPPIB’s first president for Asia and also spent nearly 20 years in Asia, working at Goldman Sachs. CPPIB plans to continue heavily investing in the APAC region, along with India.

Emerging Markets

“By 2025, we will invest up to a third of the Fund in emerging markets, which by that time are anticipated to account for 47% of global GDP,” said Machin in his section of the annual report outlining the pension’s updated strategic plan. CPPIB currently has C$ 56.1 billion invested in emerging markets, C$ 22.4 billion of which is wrapped up in China.

Foreign and emerging markets continued to dominate in CPPIB’s private equity investments with returns of 16.0% and 19.5%, compared to 1.8% for their Canadian counterparts. Asia was a standout market for the pensioner, which raised its exposure to private equity deals in the region by nearly 28% from C$ 13.4 billion to 17.1 billion, closed six direct investments worth C$ 1.6 billion, committed C$ 1.7 billion towards eight funds, and completed three secondary transactions for C$ 400 million.

With 275 global transactions completed over the fiscal year, CPPIB’s geographic exposure places 15.1% of its assets at home in Canada, 37.9% in the neighboring United States, 13.2% in continental Europe, 5.6% in the United Kingdom, 3.1% in Australia, and a whopping 20.4% in Asia.

Public Equities

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

Continue Reading

Popular

© 2008-2018 Sovereign Wealth Fund Institute. All Rights Reserved. Sovereign Wealth Fund Institute ® and SWFI® are registered trademarks of the Sovereign Wealth Fund Institute. Other third-party content, logos and trademarks are owned by their perspective entities and used for informational purposes only. No affiliation or endorsement, express or implied, is provided by their use. All material subject to strictly enforced copyright laws. Registration on or use of this site constitutes acceptance of our terms of use agreement which includes our privacy policy. Sovereign Wealth Fund Institute (SWFI) is a global organization designed to study sovereign wealth funds, pensions, endowments, superannuation funds, family offices, central banks and other long-term institutional investors in the areas of investing, asset allocation, risk, governance, economics, policy, trade and other relevant issues. SWFI facilitates sovereign fund, pension, endowment, superannuation fund and central bank events around the world. SWFI is a minority-owned organization.