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Top 10 Sovereign Wealth Fund Game-Changers of 2011

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sovereignwealth_transactionsIn general, 2011 was a tough year for sovereign investors. A major lack of public investor confidence combined with structural economic issues coming to roost depressed valuations in capital markets. Our staff has compiled a list of the top ten game-changers that will set the tone for sovereign wealth funds in 2012.

10.) Continual Low-Yield Environment – Pushing Allocation

Central banks and sovereign wealth funds are dealing with a low-yield fixed income environment. We saw a trend of the nearly full migration out of American MBS towards safe haven sovereign debt such as the United States, Germany, and the United Kingdom. Credit funds are generating major buzz. Bottom line – Liquidity – Safety – Flight

9.) Goldbug

Gold markets stayed liquid throughout the financial crisis.

Gold is up this year and it is seen mostly as an inflation hedge. Many sovereign investors have exposure to gold in ways such as funds, investing in gold mining companies, and derivatives. A few governments have actually purchased physical gold. The Qatar Investment Authority created a sovereign wealth enterprise to invest in gold, commodities, and other metals. Some investors see gold as comparable to a bond that never matures.

8.) Real Estate (Europe & U.S.)

Norway’s GPFG pulled the trigger in real estate. Granted they look expensive, core real estate in the United States and Europe are seen as a safe inflation hedge and cash flow generator. In 2012, we might see a more substantial move out of the “popular” markets such as London and Paris to secondary markets.

7.) Private Equity and the Sovereign Investor Relationship

Co-investment deals are increasing in frequency creating indirect competition for private equity firms. Private equity firm investing is a growing strategy among larger sovereign wealth funds and public pension funds. The secondary market is appealing to SWFs allocated in alternatives. More and more governments are creating joint venture country funds.

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Funds and Ownership, KKR Partners with Shinhan Financial

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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norwegian Government Recommends SWF Remains at Central Bank

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There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.

Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”

Some Central Bank Recommendations

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Invesco Buys OppenheimerFunds for $5.7 Billion

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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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