Government Fund Weekly News Roundup — SWFs Struggle for Returns

April 29, 2016 by SWC Editors

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Future Fund Chief Executive David Neal

In the news this week: Australia’s Future Fund and Norway’s Government Pension Fund Global disclose disappointing quarterly results. The Qatar Investment Authority opens a new office in India. Singapore’s Temasek Holdings and the Korea Investment Corp. make senior executive changes.

Negative Outlook

The financial markets endured a near-cataclysmic start to 2016 as global stocks nosedived amid concerns over the Chinese economy and falling oil prices. Four months on, and equities have stabilized somewhat — but institutional investors still face significant challenges. Negative interest rates, low growth in developed nations and lingering uncertainties over China’s debt mountain are among the economic clouds on the horizon. And some sovereign wealth funds are battening down the hatches in anticipation of approaching storms.

Take Australia’s Future Fund. Over the past 12 months, the A$117 billion ($89 billion) sovereign wealth fund has moved heavily into cash, which accounted for 22 percent of its assets as of March 31, 2016 — up from 15 percent three months earlier. In a press briefing on Wednesday, Future Fund Chief Executive David Neal said this defensive strategy reflects the fund’s concerns about the fragility of the global economy and the market distortions being caused by negative interest rates.

Neal said the Future Fund has lowered its return expectations since stocking up on cash. As well he might. The fund recorded losses of 0.9 percent over the three months to March 31. Overall, the Future Fund’s investments have returned a paltry 0.2 percent over the first 9 months of the fiscal year.

Norges Bank Investment Management (NBIM), the arm of the central bank that oversees Norway’s Government Pension Fund Global, also shifted into relatively more-conservative assets over the first quarter of 2016. NBIM increased the fund’s fixed-income holdings from 35 percent to 37 percent and reduced its equities allocation from 61 percent to 59 percent over the first three months of 2016. Despite this strategic shift, the fund announced investment losses of 82 billion kroner ($10.5 billion) over the quarter, which it blamed on the global stock-market volatility at the beginning of the year.

Unlike the Future Fund, NBIM has also had to contend with government withdrawals. Lawmakers have begun tapping the fund for the first time in its history to help support the Norwegian economy, which has suffered amid the drop in energy prices. The government pulled 25 billion kroner ($3 billion) from the fund in the first quarter.


QIA Opens India Office

Not all sovereign funds are adopting conservative strategies. Others are leveraging their long-term investment horizons to enter new markets and invest in illiquid assets that they hope will deliver handsome profits over the coming years.

The Qatar Investment Authority (QIA) is a good example. The fund has reportedly opened its first Indian office in Mumbai's Bandra-Kurla Complex (the site also houses the Indian offices of the Canada Pension Plan Investment Board (CPPIB) and Singapore's GIC). QIA has been increasing its investments in Indian real estate; in February, the fund teamed up with Bangalore-based developer RMZ Group to buy a business park in Mumbai for 24 billion rupees ($354 million).

Meanwhile, QIA has also continued to buy London real estate assets. This week a $600 million real estate joint venture set up by QIA and the Ascott, a unit of Singapore-based property developer CapitaLand, made its first investment in Europe. The joint venture agreed to acquire a residential complex in Islington, North London, for £52 million ($75.9 million). 


Executive Changes

One consequence of the challenging economic backdrop is that funds have begun to think more deeply about how best to organize their operations. Last week, GIC announced a reshuffle that was designed to strengthen the fund’s "capacity to deal with an investment environment of lower returns, increased volatility, and greater uncertainty," according to GIC Group President Lim Siong Guan.

This week, GIC’s national peer Temasek Holdings followed suit. The Singaporean investment company made five new appointments to its wholly-owned subsidiary Temasek International, effective May 1: Chia Song Hwee and Dilhan Pillay will join as presidents, while Fidah Alsagoff, Michael Buchanan, Png Chin Yee and Juliet Teo are new senior managing directors. Temasek also said that it is reorganizing its structure, reallocating some functions across the group to bring together its sector and market investment teams under a single investment division. Temasek is also establishing a new portfolio strategy and a new sustainability and stewardship group.

Meanwhile, the Korea Investment Corp. (KIC) has appointed Shin-woo Kang as its new CIO, according to several local media reports. Kang replaces Heung-sik Choo, who stepped down in February as part of a shakeup of the fund's governance instigated by its new CEO, Sung-soo Eun. Kang joins from Seoul-based investment firm Hanwha Asset Management, where he was president and CEO. KIC named Sang-joon Kim as its new chief operating officer earlier this month.



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