Sovereign Wealth Fund Weekly News Roundup: SWFs and External Managers

February 20, 2015 by Loch Adamson

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David Neal, CEO of Australia's Future Fund

Managers and Fees: "Less is More"?

Sovereign wealth funds’ relationships with their external managers have been in the spotlight this week. On February 16, David Neal, CEO of Australia's Future Fund , said that his private equity team is increasingly adopting a "less is more" policy when it comes to managers. Neal said high fees militate against the hiring of numerous firms and backed the California Public Employees' Retirement System (CalPERS) in its plan to reduce the number of private equity managers it uses by two-thirds.

Despite wanting to reduce the number of their manager relationships, sovereign wealth funds are still looking to leverage the expertise of external managers that have specific skill sets and which can access particular markets and sectors. For example, large private equity firms that offer a range of strategies and have a strong track record will continue to attract sovereign wealth fund capital . Washington, D.C.-based Carlyle Group, confirmed last week that it has received large allocations of capital from sovereign wealth funds of late.

Neither is sovereign wealth funds’ need for specialist managers confined to private equity. This week Norges Bank Investment Management (NBIM), the arm of the central bank that manages Norway’s giant sovereign wealth fund , on Thursday defended its use of external public-market managers from criticism in the local press, pointing out that managers have delivered strong returns — some 18 billion kroner ($2.7 billion) above costs since the fund was established — and enabled NBIM to access markets in which it lacks expertise. Despite increasingly their direct investments, funds are still more than willing to work with external firms, it seems.

Infrastructure Boom Continues

Just when you thought sovereign wealth fund investments in infrastructure had reached a peak, more of them pile into the sector. The China Investment Corp. is reportedly backing New York-based Global Infrastructure Partners (GIP) and other Chinese firms in a bid for A$20 billion ($15.5 billion) of Australian electricity ­assets. GIP, one of the world's largest infrastructure investment firms, has partnered several times with sovereign wealth funds as limited partners and co-investors, including the Alaska Permanent Fund Corp. , Australia's Future Fund and the Kuwait Investment Authority .

The Abu Dhabi Investment Authority (ADIA) and Singapore’s GIC , meanwhile, are reportedly teaming up with British private equity firm 3i Group and the infrastructure arm of financial services giant Goldman Sachs Group to bid for the Swedish electricity distribution business of Helsinki-based energy company Fortum Corp.

ADIA has also picked up a 1.3 percent stake at the privatization of Spain's Aeropuertos Españoles y Navegación Aérea (AENA), according to reports. The AENA group is one of world’s largest airport operators by passenger volume.

ADIA’s Hotel Deals

ADIA has been busy in the real estate sector this week, too. The fund completed its purchase of the Miami Beach Edition hotel in Florida for $230 million as part of an existing agreement with Bethesda, Maryland-based hotel operator Marriott International, and will buy an Edition-branded hotel in Manhattan next month. The fund is also reportedly close to buying the Milan headquarters of financial group Unicredit for between €280 million ($319 million) and €320 million alongside its partner Hines Italia, the Italian branch of Houston-based property developer Hines Interests.

NZ Super’s Legal Battle

The New Zealand Superannuation Fund is primed for a legal battle. The fund is set to join Goldman Sachs in launching legal action against the Bank of Portugal, the country's central bank, after it confirmed a decision that is likely to impose losses on both institutions.

In July 2014, NZ Super and other Goldman clients lent a total of $784 million to Lisbon-based Banco Espirito Santo (BES) via a finance vehicle called Oak Finance Luxembourg, which issued bonds to NZ Super and the other participants that were backed by the loan. But when the bank unexpectedly reported losses and the central bank stepped in, it kept the Oak Finance loan on BES’ balance sheet despite transferring other senior-secured debt to a new state-backed vehicle. NZ Super and Goldman will challenge the decision in court.

Despite factoring in a cautionary write-down of its $150 million exposure to BES in January, however, NZ Super still posted strong monthly performance figures . The fund grew NZ$240 million ($174 million) or 1.2 percent return over the month, bringing its overall assets to a record NZ$27.78 billion

New SWFs in 2015

We may soon see a new sovereign wealth fund in Papua New Guinea, after the country’s parliament finally passed revised legislation clarifying the fund’s organizational structure and financing mechanisms, after a long delay . The fund may be operational as soon as next month and could grow quickly thanks to revenue from a massive liquefied natural gas project being developed by U.S. oil and gas giant ExxonMobil.

Papua New Guinea’s fund would be the second new sovereign wealth fund to launch this year, after Mexico overcame political hurdles to launch the Fondo Mexicano del Petróleo para la Estabilización y el Desarrollo (FMP) on January 1.


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