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Will the Lost Generation in America Impact Sovereign Wealth Asset Allocation?

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Sovereign wealth funds are typically long-term investors; they can wait out financial storms and purchase assets when it is most opportunistic. Sovereign funds have been actively investing in the United States for decades, recently more in the past seven years. The slowdown in the U.S. economy has reinforced the message to sovereign funds to look elsewhere and diversify. Economies with high growth rates, low unemployment, favorable ownership rights, and sustainable demographics usually correlate to robust GDP growth and low political risk. The message in 2000 was to diversify globally. The message remains the same.

The answer to the title is yes. The next generation in the United States is facing a bleak financial future as unemployment among youth is substantially high and growing.

This increases political risk, lowers investors’ confidence, and will lead to contractions in GDP.

With the high levels of unemployment for young people, it has spurred them to live at home, consume fewer goods, delay marriage, and in the aggregate purchase less property. In addition, the lost generation is known for taking large amounts of student debt which places burdens on the Federal Government and consumption spending.

Sovereign wealth funds consume this data and make assumptions, granted the United States is still the largest market for investments; other countries have been gaining traction. In our belief, sovereign funds will select companies that have significant company exposure to overseas markets. What do Morgan Stanley, General Electric, and AES Corp have in common? They all have significant presences outside of the United States. Companies that rely on U.S. elastic consumption will suffer as long as unemployment, especially among the youth runs high.

Funds and Ownership, KKR Partners with Shinhan Financial

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South Korean financial giant Shinhan Financial Group Co., Ltd. reached a preliminary agreement with KKR & Co. to form a series of global buyout funds that could raise up to 5 trillion KRW. KKR and Shinhan signed a Memorandum of Understanding (MoU) in Seoul in early October. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Norwegian Government Recommends SWF Remains at Central Bank

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There was speculation that Norway Government Pension Fund Global (GPFG) could be managed outside of Norges Bank. The Norwegian government shot down this idea and recommended Norway’s GPFG remain in Norges Bank. This recommendation came in the form of a white paper submitted to the Norwegian Parliament, Stortinget.

Norway’s Minister of Finance Siv Jensen, commented in a press release, “The Government proposes a new and modernised governance structure for Norges Bank. Moving forward, this new structure lays the foundations for the sound management of the central bank and of the GPFG.”

Some Central Bank Recommendations

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Invesco Buys OppenheimerFunds for $5.7 Billion

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Invesco Ltd. signed a deal to acquire OppenheimerFunds, Inc. from Massachusetts Mutual Life Insurance Company (MassMutual). In turn, MassMutual and the OppenheimerFunds employee shareholders will receive a combination of common and preferred equity consideration, and MassMutual will become a significant shareholder in Invesco, with an approximate 15.5% stake. This strategic transaction will bring Invesco’s total assets under management (AUM) to more than US$ 1.2 trillion. The transaction is expected to close in the second quarter of 2019, pending necessary regulatory and other third-party approvals. The transaction gives Invesco access to more third-party distribution platforms.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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