The decline in energy prices continues, affecting
sovereign wealth funds’ balance sheets. Elsewhere,
NZ Super posts impressive annual results and SWFs pour yet more
capital into real estate and infrastructure assets.
Oil Crash Hurts Russia...
The meltdown in oil prices that began in mid-2014 has presented
sovereign wealth funds with some daunting challenges. Most SWFs already
have diversified portfolios, and few rely on oil revenue for
their ongoing funding streams, so there’s been
little panic selling as of yet. Nevertheless, the ongoing
energy-price slump is starting to tell on some
funds’ balance sheets.
Take Russia. This week Finance Minister Anton Siluanov
confirmed the government will withdraw around 2.5 trillion
rubles ($37.9 billion) from its Reserve Fund in 2015, despite a reduction
in budgetary spending. Russia's economy has been hit by Western
sanctions as well as the decline in oil prices, and the
government has been tapping the Reserve Fund since last year
for capital to finance infrastructure projects and prop up
Russia’s ailing financial institutions.
That’s not necessarily a problem — the
Reserve Fund is a stabilization vehicle, designed to support
the economy at times of need. More concerning, however, are the
ongoing withdrawals from the National Wealth Fund, which is mandated to
backstop the country’s pension system. Siluanov
said he wants to keep the combined value of the funds above RUB
2 trillion by the end of 2018. Given that their assets stood at
RUB 8.5 trillion ($147.5 billion) as of July 1, 2015, the
government could be preparing to withdraw up to RUB 6 trillion
over the next two years.
...and Abu Dhabi...
Mubadala Development Co
. has also been
affected by the fall in energy prices. This week the
sovereign development fund released its first-half financial
statements for 2015, which revealed that its profits fell
more than 50 percent year over year. The fall was largely due
to lower income from its oil and gas businesses; Mubadala
disclosed that it received only AED 2.4 billion ($653
million) from sales of energy products over the first six
months of 2015, down 17 percent on the same period last year.
The fund’s total assets stood at AED 241.7
billion ($65.8 billion) as of June 30, down from AED 243.6
billion as of December 31, 2014.
The $35.7 billion State Oil Fund of the Republic of
(SOFAZ), meanwhile, will reduce the amount it
transfers to the government next year due to declining
national oil revenue. According to the Ministry of Finance,
SOFAZ will transfer 6 billion manat ($5.6 billion) to the
government's main budget in 2016 — 42 percent less
than the 2015 transfer.
...But NZ Super Surges
Not all sovereign wealth funds are struggling. The $20
billion New Zealand Superannuation Fund
announced its results for fiscal 2015 this week —
and they reveal the fund delivered a return on investment of
14.64 percent over the 12 months through June 30. Chairman
Gavin Walker attributed the fund's strong performance to its
strategic tilting strategy, which enables its managers to
'tilt' the balance of the portfolio in the short term when
they believe a particular asset is cheap or expensive. The
strategy is working extremely well: Over the past five years,
NZ Super's portfolio has achieved an annualized return of
Hunt for Hard Assets Continues
Sovereign wealth funds continue to plow billions into real
estate and infrastructure assets, attracted by the stable
long-term cash flows they offer.
This week a joint venture between Norges Bank Investment
Management (NBIM), the arm of the central bank that manages
Norway's $870 billion sovereign wealth fund, Government Pension Fund Global
, and New
York-based financial services firm Teachers Insurance and
Annuity Association – College Retirement Equities
Fund (TIAA–CREF), bought an office building in
central San Francisco for $307.1 million.
The $747 billion China Investment Corp.
up with government-owned logistics group China Ocean Shipping
Company (COSCO) and China's largest port operator, China
Merchants Group, to buy a 65 percent stake in Kumport, a
Turkish seaport, for $2 billion.
And the $11.1 billion Bahrain Mumtalakat Holding Co.
announced it will develop a luxury waterfront resort on
artificial island Durrat Al Bahrain as part of its joint
venture with Minor Hotel Group (MHG). The two investors will
operate the 220 room- facility under the Anantara Hotels,
Resorts and Spas brand.