Overall, institutional investors fared well in 2013, performance wise. 2013 was a boon for sovereign wealth funds and public pensions with allocation to developed market public equities. On December 31, U.S. stocks closed 2013 at records. For example, the S&P 500 index recorded its biggest annual move in 16 years. Next, the shale revolution, opening of Mexico’s energy industry and rising cheapness on the price of renewable energy will have an impact on Gulf sovereign wealth fund growth. Our staff has constructed a list of the top ten game-changers that will set the tone for sovereign wealth funds in 2014.
10.) More Private Equity, Please
In this QE world, more public investors are clamoring for allocation to private equity. Sovereign funds are stepping up commitments to specialist funds and regional private equity funds. The mega PE players are raising larger funds reminiscent of 2007, just look at the recent KKR and Blackstone fund raises in 2013. The other apparent trend is that public funds are looking to limit the number of PE relationships, which could greatly affect mid-sized to smaller private equity firms.
9.) Capturing Returns
2013 was the year that many sovereign funds collected their bounty by unloading from positions made during the global financial crisis. The China Investment Corporation sold positions in General Growth Properties and restructured their holdings in energy player AES Corp. Back in February 2013, Singapore’s GIC Private Limited sold more shares in their holdings of Global Logistic Properties. At year-end, NWS Holdings Ltd., a vehicle owned by Hong Kong billionaire Cheng Yu-tung, purchased a stake from the GIC in Beijing Capital International Airport Co. – giving the Singaporean sovereign fund a nice return on investment.
8.) Logistics and Industrial Properties
Logistical properties peaked sovereign wealth fund interest. Norway’s sovereign fund embarked on two landmark deals with Prologis on acquiring a portfolio of logistical properties in both the United States and Europe. In their European deal, the Prologis-NBIM joint venture acquired a portfolio of 195 Class-A logistics facilities wholly owned by Prologis.
In March 2013, in the United States, the California Public Employees’ Retirement System (CalPERS) created a partnership with Bentall Kennedy to pursue U.S. core industrial properties. Singapore’s GIC, CPPIB and the China Investment Corporation allocated more assets on logistical properties in Asia.
7.) Direct Energy and Utility Investments
In 2013, increasingly, sovereign funds have been buying up direct energy assets. For example, in March 2013, Singapore’s Temasek Holdings augmented their stake in Repsol SA. Repsol is Spain’s largest oil company.
According to the Sovereign Wealth Fund Institute’s transaction database, from the beginning of 2008 till August 2013, over US$ 76.3 billion has been directly invested in energy-related assets and companies. This illustrates the story of a five-year trend of sovereign wealth funds plowing billions into energy – betting heavily on world energy demands. The US$ 76.3 billion includes energy companies, exploration firms, utilities and energy-related infrastructure. This does not include energy-related technology companies or real estate.
Direct Energy Transactions by Quarter
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Increasingly asset owners across the Asia-Pacific region are studying the impacts of environmental, social, and governance factors on listed companies. As more Japanese pensions augment asset allocation to listed equities, the importance of corporate non-financial disclosures and practices becomes clear. These disclosures can have a material impression on company stock prices. In addition, Japanʼs Stewardship Code and Corporate Governance Code in 2014 and 2015 were launched, respectively. These codes helped the (environmental, social, and governance) ESG concept gain momentum in Japan.
Japan’s Government Pension Investment Fund (GPIF), the largest public pension fund in the world, awarded a research mandate to Nissay Asset Management Corporation. The mandate entails studying ESG disclosures. The study will conduct a comparable analysis on ESG standards and practices, while taking into account input from both investors and companies. With around US$ 110.5 billion in assets under management, Nissay Asset Management is owned by Japanese life insurance giant Nippon Life Insurance Company.
As GPIF boosted its allocation to domestic equities, the asset owner took a deeper look into the impact of ESG on equity investing. GPIF is keen on improving efficiencies in Japan’s capital markets. GPIF is a universal owner of stocks, similar in some aspects to what Norway’s Government Pension Fund Global (GPFG) does.
Norges Bank Real Estate Management, the real estate unit of Norges Bank Investment Management (oversees Norway Global Pension Fund Global), has signed an agreement to acquire a 100 percent interest in an office property located on 54-56 rue la Boétie in central Paris.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Russia’s sovereign wealth fund, the Russian Direct Investment Fund, and American oilfield services giant Schlumberger (SLB) have planned a deal to invest in Russia’s Eurasia Drilling Company Limited. RDIF CEO Kirill Dmitriev made the announcement. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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