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Why Institutional Investors Who Go Direct Need to Think About Disruption

Michael Maduell, President of the Sovereign Wealth Fund Institute

Michael Maduell, President of the Sovereign Wealth Fund Institute

According to data from the Sovereign Wealth Fund Transaction Database (SWFTD), the pace of direct investing remains positive for both larger wealth funds and public pensions as allocating capital straight into companies and assets enables the possibility of greater control. In addition, the benefits of co-investing entails lower fees and expanding access to information asymmetry. Asset owners, such as life insurance companies or sovereign investors, can have a level of input on how the company or property is operated, financed and eventually disposed. All of this sounds fantastic at first glance. However, direct investing requires considerable amount of upfront dollars, long-term buy-in from appropriate stakeholders, such as the board of directors, and the wherewithal to bear risk in concentrated, illiquid positions. Typically, the successful asset owners in direct investing are able to define and understand the key return drivers of the particular investment.

Before parking down hundreds of millions on an asset there is a question: how will disruption affect my large purchase?

In addition, as more public funds go direct, the competition for companies and assets increases – cue bubbles. Discovering high-quality investments, identifying the value edge and goals of realistic upside are tantamount, requiring at minimum talented personnel and financial resources. The competitive bidding process could leave pensions with inadequate resources on the shorter end of the stick. Also, the ongoing management of the company or property requires a bit of executive expertise. When does the asset owner refinance or decide to divest from the investment?

The Effects of Disruption

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Concerns Raised at Potential BlackRock Takeover of CalPERS’ Private Equity

The California Public Employees’ Retirement System (CalPERS) has been analyzing options on what to do with its massive US$ 26 billion private equity program. The pension system has embraced the mantra of reducing cost, reducing complexity and reducing risk, the hallmark of its program called “INVO 2020”. CalPERS also wants less, but more strategic relationships with external money managers. At one point, CalPERS was contemplating increasing its direct investment staff to model Canadian pension funds such as Canada Pension Plan Investment Board (CPPIB), OMERS and the Ontario Teachers’ Pension plan. The pendulum has begun to swing the other way as reported earlier by SWFI research staff.

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CDP Signs €1.7 Billion Infrastructure Loan Agreement with Atlantia Group

Cassa depositi e prestiti S.p.A. (CDP) and Atlantia Group’s Autostrade per l’Italia (ASPI) have signed a €1.7 billion loan contract dedicated to upgrading motorways in Italy under concession to ASPI. €1.1 billion will come in the form of a term loan with a 10-year tenure, with the remaining €600 million wrapped up in a five-year revolving loan.

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Sovereign Funds Commit to Integrating Climate-Related Risks at One Planet Summit

Representatives from a number of sovereign wealth funds who collectively govern over US$ 2 trillion in assets came together at the One Planet Summit at the Élysée Palace in Paris in order to discuss what public asset owners can do to incorporate climate change-related risks and opportunities into investment considerations.

The newly formed committee – called the One Planet Sovereign Wealth Fund Working Group – includes as its founding members the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA), Norges Bank Investment Management (manager of Norway’s Government Pension Fund Global), Saudi Arabia’s Public Investment Fund (PIF), and the New Zealand Superannuation Fund.

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