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What Can Institutional Investors Expect from a Trump Win?




The 30-year plus proliferation of globalism for now has taken a backseat. Due to intense reader interest by our internal analytics, I felt that I needed to write about the outcome of the U.S. election.

Many wealthy, business, and politically-powerful individuals (a majority residing in urban enclaves) in the U.S. have tremendously benefitted from globalist policies, while people residing in rural and smaller suburban areas in the country have not partaken or shared nearly as much in financial prosperity. Quantitative easing (QE) policies enacted by the U.S. Federal Reserve benefitted U.S. stock markets (wealthy people tend to hold large retirement accounts holding stocks), not small-time savers. The results were shown on November 8, 2016 (see electoral map via New York Times).

Centrism and moderates are on their way out, as voters, consciously or not, become impatient with the status quo.

In an internal summary I shared with some staff back in May 2016, after looking at populist sentiment and polling data, I had concluded before the conventions that Trump would barely win based on the electoral map and the popularity of U.S. Senator Bernie Sanders in the northern states. Florida and Ohio were the main states. This is what I wrote, “I predict the presumptive U.S. Republican nominee Donald Trump will barely edge out Hillary Clinton in the U.S. election in a game of electoral chess.” Also to be fair, in that May summary, I was wrong on the outcome of the Brexit vote.

U.S. voters, through the electoral college system, have given U.S. President-elect Donald Trump a mandate. Centrism and moderates are on their way out, as voters, consciously or not, become impatient with the status quo. The Republican party now controls the Presidency, Senate and House of Representatives, a party reversal of when President Obama won in 2008. What does this mean for global institutional investors? The idea of a Trump victory is something a number of chief investment officers around the globe have chatted about. The election to them was a binomial event on a known date. By analyzing polling data and following wonks like Nate Silver, many U.S. media personalities believed Clinton would win. The analysis was faulty and the majority of T.V. pundits on the major networks did not have a solid understanding in basic statistics and sampling. Other issues in the faulty analysis are groupthink and the danger of echo chambers. This could be another story to pen.

Reform Candidates: Modi and Trump

Sovereign wealth funds and large pension investors, in cases when there are new parties in power, cautiously await the policy proposals of an incoming administration. One can look how India is now the darling of sovereign wealth fund and pension direct investment under Indian Prime Minister Narendra Modi. Modi was able to enact a series of reforms that attracted global institutional investor capital. According to data from SWFI’s transaction database, direct sovereign wealth fund and pension transactions remain resilient in India, while tapering off in other Asian markets. Trump is known as a builder and domestic spending will probably be a hallmark of his administration to create jobs and rebuild the country’s infrastructure. Will there be a U.S. infrastructure bank to lure sovereign wealth fund and pension money to help rebuild the crumbling infrastructure across America?

Discreetly, many CIOs believe a Trump win could signal a dramatic rise in the U.S. stock market, while having a negative effect on equities in emerging markets. However, this could be severely tapered if the Federal Reserve were to move aggressively on interest rates. While Hillary Clinton and Donald Trump were neck-and-neck in the early results on November 8, 2016, the Dow Jones Industrial Average (DJIA) futures took a precipitous fall. However, by 11:35 P.M. EST, when Trump was declared the winner of the state of Florida, it rocketed up. Many financial media talking heads and pundits (who were clearly wrong on the outcome of the election) said a Trump victory would be devastating for the stock market. On a November 1, 2016, interview with CNBC, Mark Cuban, Dallas Mavericks owner and reality T.V. star of Shark Tank, said that a Trump win would be the “worse for the market,” because he alleged Trump did not know when to talk. In contrast, Carl Icahn, a supporter of Donald Trump, quickly ran to the exits during the victory party to bet around US$ 1 billion on U.S. equities (confirmed in a telephone interview on Bloomberg TV.)

In the interview, he said, “The S&P was so liquid — it was unbelievably liquid — the world was going nuts. Last night it was amazing, the world was going into a panic with no reason.”

Hysterical reactions are opportune times to earn returns.

Image Credit: C-SPAN.  U.S. President Obama meets with U.S. President-elect Trump for the first time in the Oval Office - November 10, 2016.

Image Credit: C-SPAN. U.S. President Obama meets with U.S. President-elect Trump for the first time in the Oval Office – November 10, 2016.

Winning Industries

Trump is inheriting a slowing U.S. economy mired in a world of negative interest rates. Second, this is the first time in U.S. history a real estate developer will be taking over the White House. Already U.S. listed equity investing in surging in some sectors, while declining in others.

Here are some data points from Park Alpha, the consulting division of SWFI.

Sector / Industry Asset Benefit Park Alpha General Reasoning
Pharmaceuticals Listed Equities Yes GOP controls House and Senate, may get push back from Trump over regulations and limiting drug company profits in Medicare and other programs
Health Insurance Listed Equities No Short-term pain over uncertainty regarding the replacement of the U.S. Affordable Care Act (Obamacare)
Construction Listed Equities Yes Trump is keen on building all types of things, real estate and infrastructure.
Materials Listed Equities Yes Raw materials could make a comeback, as the U.S. could generate a large amount of jobs (trade and infrastructure).
Solar and Wind Listed Equities No Be prepared for a cut in subsidies
Tech Stocks Listed Equities No Trade and manufacturing
Oil & Gas Listed Equities Yes GOP-led, could see further incentives for areas in oil & gas
Aerospace Listed Equities Yes Could see increases in orders, altering trade deals
Defense Listed Equities Yes Typically rises when GOP controls both chambers
U.S. Offices Real Estate Yes Could see economic growth
Hedge Funds Hedge Funds No GOP vs. Trump on getting rid of carried interest for hedge funds. Most hedge fund executives supported Clinton over Trump.
Renewables Private Equity No Under Trump, if it is not economically-feasible without subsidies, high-risk of failure.

This is not investment advice. Please read the disclaimer.

The views in this article are expressed by Michael Maduell.
Michael Maduell is President of the SWFI.

CPPIB and Ares-Owned Neiman Marcus Faces Lawsuit from Marble Ridge Capital



The storied Neiman Marcus Group is a highly-leveraged luxury retailer as the result of two leveraged buyouts (LBO). After its second LBO, Neiman Marcus was stuck with US$ 4.91 billion in funded debt. Neiman Marcus’ profits are in sharp decline starting from 2015. Neiman Marcus is facing short term debt maturities.

Hedge fund Marble Ridge Capital LP, a New York-based firm, is suing Neiman Marcus Group, Inc., and the investors behind it in Dallas County, Texas. Marble Ridge Capital claims the parent company of Neiman Marcus defrauded creditors of Neiman Marcus by transferring assets worth approximately US$ 1 billion of value to the parent company for no consideration. Maple Ridge Capital claims the scheme was perpetrated for the benefit of the indirect beneficial owners of the company – Ares Management, L.P. and the Canada Pension Plan Investment Board (CPPIB), according to the lawsuit. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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SWFI First Read, December 10, 2018



IMF Bentham Opens New London Office

IMF Bentham Limited opened a new London office called IMF Litigation Funding Services Limited. The division will provide litigation finance, investment capital and strategic services for disputes in the EMEA region, which includes the United Kingdom, Europe, Middle East, and Africa.

Falck Renewables Buys Portfolio of Windfarms in France

A subsidiary of Falck Renewables acquired a portfolio of five onshore windfarms in north-eastern and western France from a fund affiliated with Glennmont Partners for €37 million. The sale was due to the fund’s divestment plan. These windfarms are located in Bois Ballay, Les Coudrays, Mazeray, Eol Team, and Noyales.

Carlos Ghosn Charged by Japanese Prosecutors

Japan government prosecutors indicted Carlos Ghosn, the former chairman of Nissan Motor, and the auto company. The indictment accuses the parties of violating Japanese financial laws by underreporting his compensation. Nissan disclosed Ghosn’s misconduct which included underreporting his compensation and using corporate funds for personal expenses.

OIF Plans to Go Defensive on Public Equities

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First Inning on Augmented Reality a Strike for SWFs



Augmented reality (AR), which is not the same as virtual reality, is an industry that sovereign wealth capital has slowly permeated. The impressive technology has not made inroads into mainstream U.S. culture – remember Google’s efforts with Google Glasses. However, these augmented reality glasses may have industrial purposes such as in car production or logistics.

Malaysia’s Khazanah Nasional Berhad backed London-based Blippar, an augmented reality studio company. Blippar appears to be on the brink of financial collapse, according to a number of media sources. There is a dispute between investors Khazanah and Nick Candy, in which the SWF had blocked emergency fundraising. This fundraising effort would have most likely lowered Khazanah’s equity stake. In June 2018, Blippar raised an extra £20 million from investors to keep things running. David Rubin & Partners LLP was hired by Blippar as insolvency practitioners.

Magic Leap

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