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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The Bank of Montreal (BMO) and the Ontario Teachers’ Pension Plan (OTPP) participated in a landmark blockchain Canadian-dollar debt transaction. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Just Group plc acquired a 75% ownership stake in the holding company of Corinthian Pension Consulting Limited (Corinthian Pension Consulting). Operating in the institutional world for over 12 years, Corinthian Pension Consulting provides advisory services to defined-benefit pension scheme trustees and scheme sponsors undertaking bulk scheme exercises. The remaining 25% will be retained by current shareholders of Corinthian Pension Consulting. Robert MacGregor will continue to lead Corinthian Pension Consulting, as its Chief Executive Officer. Furthermore, Corinthian Benefits Consulting Limited and Corinthian Affinity Solutions Limited will continue to operate as before, becoming part of a newly formed holding company, Corinthian Group Holdings Limited.
U.S. President Donald Trump is giving a possible gift to long-term institutional pension funds and sovereign funds that clamor for “long-termism” when it comes to publicly-traded companies. Many large Canadian pension funds, like CPPIB, have decried that listed companies operate in short-termism earnings philosophy, trying to focus on a quarter by quarter basis. BlackRock’s CEO Larry Fink has publicly heavily opined on short-term corporate think on quarterly earnings. Listed company CEOs are heavily incentivized to produce strong quarterly earnings, which is often linked to corporate compensation.
President Trump requested the U.S. Securities and Exchange Commission (SEC) to study the impact of allowing companies to file reports in a six month time framer versus the traditional quarterly time frame.
On Twitter, President Trump tweeted, “In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. ‘Stop quarterly reporting & go to a six month system,’ said one. That would allow greater flexibility & save money. I have asked the SEC to study!”
Listed companies in the U.S. are required to file earnings reports every quarter. This move could reduce filings to two times per year. The investor community is divided as long-term institutional investors typically want companies to report less, while other investors favor more disclosure – keeping corporate executives accountable to generating returns for shareholders.
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