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Traditional Active Managers Fear Smart Beta Adoption

Institute Fund Summit Europe 2014, October 27, Smart Beta Panel.  Pictured: (L-R) Michael Maduell, SWFI, Mark Sodergren, Northern Trust, Luciano Siracusano, WisdomTree, Riti Samanta, SSgA, Simon Lansdorp, Robeco.

Institute Fund Summit Europe 2014, October 27 at the Jumeirah Carlton Tower – Smart Beta Panel. Pictured: (L-R) Michael Maduell, SWFI, Mark Sodergren, Northern Trust, Luciano Siracusano, WisdomTree, Riti Samanta, SSgA, Simon Lansdorp, Robeco.

Factor-based strategies are gaining foothold among institutional investors of all stripes. One compelling reason is that investors are concerned about the risks of cap-weighted indices. These indices tend to favor large companies and can perpetuate a cycle of overvaluation – think of Enron and Lehman Brothers. These rules-based indices are exhibiting visigoth behavior on traditional managers, as a swath of institutional investors continue to seek out more information about smart beta. The large sovereign funds like the Abu Dhabi Investment Authority and Norway’s Government Pension Fund Global manage mega portfolios of listed equities. Smart beta is a way to cut down on costs. Japan’s Government Pension Investment Fund (GPIF), has hired a number of smart beta managers including Goldman Sachs Asset Management, which benchmarks itself using S&P GIVI (Global Intrinsic Value Index), a S&P Dow Jones rules-based index focused on intrinsic stock value. With a cost structure lower than active management, but allowing more control than traditional index funds, smart beta seems like a promising concept for investors. Active managers critique smart beta on that it cannot reliably and consistently beat the markets. Countering, proponents of smart beta say what strategy has ever, consistently beat markets.


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Globally, institutional investors are probing deeper into smart beta. From a historical standpoint, European pensions were the early institutional investor adopters of smart beta. According to the Sovereign Wealth Fund Institute’s smart beta survey, which includes 72 public institutions, featuring 16 sovereign wealth funds, with over US$ 2.9 trillion in public investor capital, 67% claim to already have smart beta allocations or are currently in the evaluation process. When it comes to sovereign wealth funds in the survey sample, 37% say that they have allocations to smart beta, while another 25% say that they are currently evaluating a smart beta strategy.

Institutional Investors Remain Skeptical as Bitcoin Continues to Rise

Bitcoin has continued to rally over the past month – hitting a record US$ 8,224 in the early hours of November 20 – and institutional investors are beginning to take notice of the cryptocurrency’s increasing popularity. With a market value of more than US$ 130 billion, the digital currency has seen unprecedented growth of over 700% over the past year. But Bitcoin’s rise has also been marked by a number of volatile slumps, leaving institutional investors divided over its durability as a long-term store of value and wondering whether to get in on the action. Despite these headwinds, more than 100 hedge funds have been formed to trade in digital currencies.

Split Consensus on Wall Street

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3 Reasons Why Other Sovereign Funds Will Not Dump Oil Stocks

Norges Bank informed the country’s ministry of finance to recommend the wealth fund to remove oil and gas listed equities from the fund’s benchmark index. The central bank came to the conclusion that Norway’s Government Pension Fund Global (GPFG) would be less vulnerable to a permanent drop in oil prices if the wealth fund was not invested in oil and gas listed equities. For some academics there are arguments that wealth funds should diversify away from their sources of wealth. Contradictory studies have demonstrated that wealth funds should support industries that enhance the country’s sources of wealth. For example, earlier on, Norway’s fossil fuel wealth was buoyed by increased capital investment to the oil sector to increase output, a pre-cursor to the wealth fund’s explosive growth.

1. Stock Performance
For some sovereign investors, investments in master limited partnership in oil and gas have been strong driver of returns, or even in smaller fossil fuel listed companies. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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GIC Financially Backs Innovation Precinct Project in Melbourne

Singapore’s GIC Private Limited acquired a majority interest in a joint project located in Melbourne, Australia. The joint project is between Sydney-based Lendlease, Australia-based Urbanest and GIC. In 2014, the project was labeled Carlton Connect Initiative with the goal of being an innovation hub.

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