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Top 10 Sovereign Wealth Fund Game-Changers of 2013

top10Overall, 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

Period Billions USD
Q1 Y2013 2.20
Q2 Y2013 0.13
Q3 Y2013 0.88
Q4 Y2013 2.81
Total 6.03

Source: Sovereign Wealth Fund Transaction Database

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Adrian Orr Named Governor of Reserve Bank of New Zealand

NZ Super Fund CEO Adrian Orr is exiting the sovereign fund to take up a new executive role at the country’s central bank. Adrian Orr is becoming the Governor of the Reserve Bank of New Zealand. Orr will officially leave NZ Super in March 2018, effectively starting his 5-year term as central bank governor on March 27, 2018. Adrian Orr is returning to this central bank roots. He was previously a deputy governor at the Reserve Bank of New Zealand.

Catherine Savage, Chair of the Guardians of New Zealand Superannuation, in a news release stated, “I know that in working for the NZ Super Fund Adrian has valued the opportunity to make a contribution to New Zealand highly. The role of Governor of the Reserve Bank will enable him to continue to do this. While we are naturally disappointed to lose Adrian, we congratulate him and the Reserve Bank on his appointment, and wish them both well.”

Orr will take the helm of central bank governor from Grant Spencer, who became acting Governor on September 26, 2017. Grant Spencer was Deputy Governor of the central bank, taking over from Graeme Paul Wheeler, who was central bank governor from 2012 to September 2017. Wheeler was a former Managing Director and former Treasurer at The World Bank.

Orr was nominated numerous times on SWFI’s Public Investor 100 annual ranking.

1. 2013, #22
2. 2014, #16
3. 2017, #3

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Some Asset Owners See Treasury Bond Yields as Factor in Driving Equities

Revealed results from the fourth quarter 2017 SWFI Global Asset Owner survey released in early December shows that majority of institutional investor respondents, which include pensions, sovereign funds and other public funds, believe U.S. tax reform would be the largest driver of equity prices in the next six months. The quarterly survey excludes asset managers and targets asset owners. U.S. President Donald Trump calls the Republican party’s US$ 1.5 trillion tax cut as economic “rocket fuel”.

Treasury Bond Yields and Robust U.S. Job Creation

Even more enlightening was the number two finalist in the question, treasury bond yields, which almost tied U.S. tax reform. Institutional investors are carefully analyzing the figures being released by the U.S. Department of Labor (DOL), as the unemployment rate stayed at 4.1% and payroll numbers continues to improve. The U.S. economy added 228,000 jobs in November 2017, according to DOL data. Post-report the 10-Year U.S. Treasury yield fell lower. Sovereign funds still hold a large portion of investments in liquid fixed income investments, despite noteworthy large-scale infrastructure or buyout deals headlined by financial media.

The majority of Federal Open Market Committee members did not factor in U.S. tax reform in the September projections. The question looms if the U.S. Federal Reserve will keep pace on monetary tightening, as Janet L. Yellen is being pushed out of the chair spot. As Jerome H. Powell awaits in the wings, Yellen’s tenure as Fed chairman is the shortest since G. William Miller, who served from 1978 to 1979. Faster economic growth and better job numbers could lead to more interest rate increases. Depending on the adoption and speed, increased interest rate measures would deeply impact junk bonds and further accelerate the demise of troubled enterprises.

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Bagamoyo Project Revitalized, Oman and China Look to Move Forward

The Government of Tanzania is completing talks with Oman and China over the Bagamoyo Port project in the Bagamoyo Special Economic Zone at a cost of 22.3 trillion Tanzanian shilling (US$ 10 billion). [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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