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The Sovereign Wealth Fund Lending Game




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, January 19, 2018



RDIF Portfolio Company PhosAgro Raises Bond Issue

PhosAgro is a portfolio company of the Russian Direct Investment Fund (RDIF). The company price out a US$ 500 million 5.25-year Eurobond issue that has a coupon of 3.949%.

Alison Swonnell Named Global Head of Institutional Marketing at Fidelity International

Alison Swonnell was hired on as Global Head of Institutional Marketing at Fidelity International. She will be based in London and report to Chuch McKenzie, the firm’s global head of institutional clients. Before Fidelity, Swonnell was Director of Fund Operations for LCM Partners, an alternative investment management firm.

NY Governor Cuomo Seeks to Treat Carried Interest as Ordinary Income for State Taxes

On January 18, 2018, New York Governor Andrew Cuomo revealed he had submitted a bill to the New York State Legislature that seeks to treat carried interest as ordinary income rather than capital gains in regard to state taxes. Governor Cuomo in his press release said that the federal carried interest tax provision costs New York roughly US$ 100 million per year.

William Bain – Bain Founder Passes Away

Dated January 18, 2018, William Bain Jr. passed away at his home in Naples, Florida at the age of 80. Bain started at the Boston Consulting Group and left in 1973 to form Boston-based Bain & Co. By 1984, Bain formed Bain Capital alongside a number of colleagues including former 2012 Republican presidential nominee Mitt Romney. In a statement to the Boston Globe, Romney said, ” It’s hard for me to imagine my life and career without Bill Bain’s mentoring.”

Prostar Capital Gets Controlling Stake in Socar Aurora Fujairah Terminal

Prostar Capital now has a 90% control stake in Socar Aurora Fujairah Terminal FZC by purchasing 100% of the shares of Socar Aurora Terminals S.A. The Prostar Capital entities investing in the asset are Prostar Asia-Pacific Energy Infrastructure Fund and a co-investment fund managed by Prostar Capital for a large U.S. state pension plan. The storage terminals acquired in the Port of Fujairah in the United Arab Emirates.

Socar Aurora Fujairah Terminal FZC is a joint venture between State Oil Company of Azerbaijan Republic (SOCAR), Swiss-based commodity trader AURORA Progress, and the Government of Fujairah.

Prostar Capital started buying the terminal back in 2013 at 18.6%. The private equity firm eventually moved its ownership up to 40% on August 14, 2015.

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ISIF Plans to Back 20 Solar Farms in Ireland



The Ireland Strategic Investment Fund (ISIF) and Hamburg-based Capital Stage, a solar and wind park operator, are financially backing the development of 20 solar farms in Ireland which has an estimated cost at €140 million. ISIF is funding 25% of the costs, with Capital Stage providing 75% of the costs.

The generation capacity is estimated at 140 MW, with each farm ranging between 5 MW to 25 MW. The majority of the solar farms will be located along the east and south-west coasts of Ireland. Power Capital, a Dublin-based energy company formed by Peter Duff and Justin Brown in 2011, is overseeing the developments.

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PNB to Buy Stake from Malaysian Developers in Battersea Power Station Project



Malaysia-based Permodalan Nasional Bhd (PNB) inked plans to acquire a stake in the Battersea Power Station from Malaysian developers Sime Darby Property and SP Setia, which between them own 80 percent of the site located on the south bank of the Thames. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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