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Why Sovereign Funds are Unfazed by Latest Market Swings

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It has been hammered into the global collective consciousness that sovereign wealth funds are long-term institutional investors and contrarian stylistically at many instances. The latest U.S. stock market drop has put some investors at an impasse. Will the fall continue? How important is market timing?

The deleveraging of select institutional investors, such as systematic trading allocators, likely contributed to the stock market drop on the fifth of February. The plausible technical-driven sell-off has long-term pensions and sovereign funds licking their lips for the buy the dip moment. The California Public Employees’ Retirement System (CalPERS) months ago signaled they were increasing public equities and reducing the amount of private equity managers being used.

There is legitimate anxiety of higher interest rates with a new Federal Reserve chairman – Jerome Powell – among traders and investors. The Federal Reserve being cautious on triggering a U.S. recession is undoubtedly looking at consumer sentiment and production indicators, before the signal or vote on rate decisions for the near future. The slowdown in quantitative easing (QE) policies have already impacted global markets, causing a rise in bond yields across markets. Risk-seeking traders playing the short-term volatility game felt the heat in early February, after the massive single-day decline in stock markets. Despite sovereign funds having a pool of over US$ 7 trillion in assets, retail investors have a major role in the ups and downs of the U.S. stock market. Wall Street often markets exchange-traded products and mutual funds off of stock-trading websites and financial news sites. Many retail investors dabble in stocks and exchange-traded products (ETP).

VIX Product Collapse

The Monday mayhem of February 5, 2018, jolted investors, both retail and institutional money. Two exchange-traded products tied to the Chicago Board Options Exchange (CBOE) volatility index – or VIX – collapsed in afterhours futures trading on Monday – February 5, losing 95% of their value after the popular indicator of investor anxiety doubled in response to the worst day for markets since the summer of 2011. CBOE Global Markets paid the price later on the sixth; as of 4:00 p.m. EST that day, CBOE’s stock was trading down 10.42% at US$ 116.93 a share.

The VelocityShares Daily Inverse VIX Short-Term ETN (XIV) and ProShares Short VIX Short-Term Futures ETF (SVXY) – both issued by Credit Suisse – provide single-day returns on the inverse of the VIX, and have been immensely popular over the past year with traders banking on markets remaining mild. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Scatec Solar Places Big Solar Bet in Bangladesh

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Oslo-based Scatec Solar ASA, a publicly-traded independent power producer operating in the emerging market solar development space, plans to construct and own a 800 mega watt photovoltaic solar power plant in Chandpur, Bangladesh. Scatec Solar has solar assets scattered across numerous emerging markets such as South Africa, Rwanda, Honduras, Egypt, Jordan and the Czech Republic.

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APFC Sells $1.4 Billion Stake in Simpson Housing

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The Alaska Permanent Fund Corporation (APFC) embarked on a major shift in its real estate portfolio by selling a 50% ownership stake in Denver-based Simpson Housing LLLP for US$ 1.4 billion. Simpson Housing had made up roughly 24.7% of APFC’s US$ 5.6 billion real estate portfolio. The other owner of Simpson Housing is that State of Michigan Retirement Systems.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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ISIF Invests in Cybersecurity Firm Vectra

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The Ireland Strategic Investment Fund (ISIF) committed €10 million to Vectra Networks, Inc., a San Jose, U.S.-based cybersecurity company. The investment capital will assist Vectra in creating a research and development center in Dublin.

ISIF is part of a larger funding round of €30 million. These other investors include Khosla Ventures, Accel Partners, DAG Ventures, AI Ventures, AME Cloud Ventures and Wipro Ventures.

Kevin Dillon, who is the former Head of Microsoft Ireland and a Managing Partner at Atlantic Bridge, will join the board of directors at Vectra.

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