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What Should Sovereign Wealth Funds Do Now?

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Should they buy or sell stocks? How will oil-based sovereign funds experience a slowdown in the accumulation of financial assets? When equity returns become an important factor for Gulf sovereign fund asset growth, the impact of falling listed equity markets raises issues of fund liquidity. This is why a number of Gulf funds have been redeeming equity mandates in late 2015. This appears to have been a smart move as 2016 is off to a terrible beginning with China and U.S. equity markets in free fall. Why? Just to name a few – concerned about yuan devaluation, low growth in emerging markets, and falling manufacturing figures in China. On January 7th, 2015, the People’s Bank of China lowered its reference rate for the yuan by 0.5%. The central bank policy move triggered panic; the Chinese equity market closed only 29 minutes after opening when the 7% decline threshold was met. Heading West, since the beginning of the year, the Dow Jones Industrial Average (DJIA) lost 5.2% of its value. If a global financial crisis were to break out, sovereign funds may not be in the position of being white knights like back in 2008. However, some will remain very opportunistic in distressed plays. Practically speaking, a number of strategies are getting greater recognition by SWFs such as smaller direct deals, generating steady income and keeping money at play in Europe and Japan.

With the exception of large real estate transactions, according to the Sovereign Wealth Fund Transaction Database (SWFTD), wealth funds are spending on average, smaller amounts on companies.

Concerns About Global Liquidity

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Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norway’s GPFG Banned from Investing in 9 Companies Over Nuclear Weapons

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The recent false alarm caused by a state employee in Hawaii (who was not terminated and reassigned to a new position), triggering the Emergency Alert System message at 8:07 a.m. caused pandemonium in the state. After decades of failure in diplomacy between the United States and North Korea, the threat of a nuclear missile attack has grown since. The states of Alaska and Hawaii are the closest states to North Korea.

Besides the recent news in the world of nuclear missiles, Norges Bank oversees the management of the country’s sovereign wealth fund. The central bank has moved to ban nine companies from the Government Pension Fund Global. In addition, one company has been placed under observation. The Executive Board of Norges Bank’s decisions on exclusion were made on the basis of recommendations from the Council on Ethics. However, before moving to exclude a company, the central bank may consider other options, such as the exercise of ownership rights. In these instances of companies, the board determined that it was appropriate to use other measures in these cases.

The Council on Ethics’ recommendations to exclude:
Risk of severe environmental damage and serious or systematic violations of human rights
Evergreen Marine Corporation (Taiwan) Ltd
Korea Line Corporation
Precious Shipping PCL
Thoresen Thai Agencies PCL

Unacceptable risk of serious or systematic violations of human rights
Atal SA

Over involvement in the production of nuclear weapons
AECOM
BAE Systems
Fluor Corporation
Huntington Ingalls Industries Inc
Honeywell International Inc (already previously excluded)

Placed Under Observation
Pan Ocean Co. Ltd

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Sistema to Pledge Assets to Help Fund Settlement

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The Russian Direct Investment Fund (RDIF) is helping a settlement situation between two Russian economic powerhouses. In January 2018, Sistema, under a settlement, is mandated to pay Bashneft oil company, which is owned by energy behemoth Rosneft, 100 billion roubles (US$ 1.8 billion) by March 30, 2018.

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