Sovereign Wealth Fund Weekly News Roundup: SWFs Eye New Private Equity Strategies

February 27, 2015 by Loch Adamson

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 Guy Hands, chairman and CIO of London-based private equity firm Terra Firma

Private Equity

Sovereign wealth funds are adopting new approaches to private equity investments, we learned this week. Guy Hands, founder of London-based Terra Firma, told Sovereign Wealth Center that state-owned investors are showing interest in the firm’s innovative new model; unusually, Terra Firma’s remuneration will derive almost entirely from performance , not myriad management and service fees. That’s proving attractive to sovereign funds, several of which have recently complained about the spiraling costs of private equity managers.

Sovereign Wealth Center understands that the Abu Dhabi Investment Council (ADIC) is one of the funds that is actively working alongside private equity managers, rather than passively investing in funds. ADIC may be the fund that is rumored to be partnering with London-based Coller Capital, a specialist investor in private equity’s secondary market, to help restructure Irving Place Capital Partners III, a $2.7 billion buyout fund raised in 2006 by Irving Place Capital Management of New York.

Collateral Management

Just as they renegotiate their dealings with private equity managers, sovereign investors are seeking different, closer relationships with their custodians. Funds are increasingly working with custodian banks to more efficiently manage their collateral reserves — and they are even participating in unusual strategies such as collateral transformation to boost returns . It’s a new industry, though, and it involves a combustible mix of risks and opportunities.

Temasek in Asia

We’ve recently reported on how the crash in global oil prices is leading to a shift in the global balance of power toward Asia — many Asian economies are major oil importers and will therefore benefit from the lower prices. Sovereign wealth funds are ramping up their investments in Asia as a result — and none more so than Singapore’s Temasek Holdings .

On Monday, Temasek participated in a $100 million financing round for Chinese online teaching and learning platform The Singaporean investor also reportedly provided seed capital to Aventia Master Fund , a new Asia-focused hedge fund being set up in the city state by Allen Chu, a former partner at Greenwich, Connecticut-based hedge fund Tudor Investment Corp. Temasek is also rumored to be in talks to become a cornerstone investor at the initial public offering (IPO) of Beijing-based financial services firm Postal Savings Bank of China in early 2016, which could raise anywhere up to a massive $25 billion.

Temasek also demonstrated its considerable clout as an activist investor this week as London-based emerging-markets-bank Standard Chartered shook up its board , appointing former J.P. Morgan Chase & Co. executive Bill Winters as CEO to replace Peter Sands. Temasek, the major shareholder in StanChart, had reportedly been pushing for the change because it blamed Sands for failing to react quickly enough to a plunge in the bank’s share price, which has halved since its March 2013 peak.

Hong Kong to Launch $28 billion SWF

Hong Kong will soon have a new sovereign wealth fund . The territory’s financial secretary John Tsang Chun-wah said in his budget speech on Wednesday that he had accepted a recommendation from the Hong Kong government-appointed Working Group on Long-Term Fiscal Planning to establish an intergenerational savings vehicle with HK$220 billion ($28 billion) before the end of 2015.

How the so-called Future Fund will interact with the Hong Kong Monetary Authority (HKMA), the central bank that already manages a long-term investment portfolio , remains to be seen. As they set up the Future Fund Hong Kong’s lawmakers would do well to study the relationship between the mainland’s two investment vehicles — the China Investment Corp. and the State Administration of Foreign Exchange — which has not always been a happy one .

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