Government Fund Weekly News Roundup — GIC Zigs As Markets Zag

December 04, 2015 by Loch Adamson

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Dilma Rousseff

This week: GIC increases its stake in a Brazilian hospital operator, Norway and Kuwait tighten up governance at their sovereign wealth funds and CPPIB invests in London property.

GIC’s Opportunistic Investment in Brazil

It never rains but it pours, the saying goes. Spare a thought, then, for Brazil’s President Dilma Rousseff, whose tenure is beginning to resemble one long tropical thunderstorm.

Elected on a populist platform, Rousseff is now deeply unpopular thanks to her administration’s bungling of the economy. Indeed, she has the dubious distinction of being the only leader in Brazil’s history whose dismal public approval rating (8 percent) has slumped below the inflation rate of approximately 10 percent. 

And things are going from bad to worse. Figures published on Wednesday show Brazil is now mired in its worst recession in 25 years, with GDP shrinking 4.5 percent year-on-year in the third quarter. As if that wasn’t enough for Rousseff to deal with, opposition lawmakers have now initiated impeachment proceedings against the embattled president. 

Government investors could have understandably run a mile from such political and economic turmoil. Not GIC. This week Singapore’s $343 billion sovereign wealth fund increased its stake in São Paulo-based Rede D'Or São Luiz, Brazil's largest hospital chain. In May, GIC had paid an estimated 3.2 billion reais ($1 billion) to buy a 15.2 percent stake in the hospital operator from the Moll family, who founded the company, and Grupo BTG Pactual, Latin America's largest investment bank.

Now the fund has nimbly stepped in to take an additional 12 percent stake in the business from BTG,  whose shares have plunged following the resignation of André Esteves as CEO. Esteves left his position at the bank following his arrest for allegedly interfering in a corruption investigation into state-owned oil giant Petrobras. 

GIC paid the troubled bank 2.38 million reais, or $617 million, for the Rede D'Or shares — a significant discount on the price it paid in May. (GIC has an existing relationship with BTG, having invested in the bank in 2010 alongside two of its peers, the Abu Dhabi Investment Council and the China Investment Corp.)

As GIC’s Group CIO Lim Chow Kiat told SWC last month, the Singaporean fund has identified a long-term investment opportunity in Brazil, based on the projected spending power of the country’s emerging middle class. The new Rede D'Or deal shows GIC is sticking to its word despite the country’s recent problems — and demonstrates that the sovereign fund is one of the few willing to execute opportunistic, countercyclical investments.

Governance in the Spotlight

The government of Kuwait wants answers about the relationship between a subsidiary of the $592 billion Kuwait Investment Authority (KIA) and local firm Advantage Consulting Co. The fund lost approximately 156,000 Kuwaiti dinars ($512,315) as a result of alleged mismanagement by the consulting firm, according to a parliamentary committee investigating the issue.

Norway, too, is trying to tighten up oversight of its $823 billion sovereign wealth fund, Government Pension Fund Global. The Norwegian government has appointed Egil Matsen as a second deputy governor at the country's central bank to oversee the work of Norges Bank Investment Management (NBIM), the department that manages the fund. Matsen, an economics professor at the Norwegian University of Science and Technology, has previously served as an executive director at Norges Bank and will supervise NBIM's management of GPFG in his new role.

Property Prices

Government funds' interest in London property shows now signs of abating, despite soaring prices and fierce competition. This week a joint venture between the $215 billion Canada Pension Plan Investment Board (CPPIB) and Hermes Real Estate, a division of U.K.-based asset manager Hermes Investment Management, bought Haymarket House, an office complex in the center of the U.K. capital. The partners paid £156 million ($235 million) to acquire the building from local property investor Land Securities Group.

In Tokyo, on the other hand, high prices are tempting sovereign funds to cash in on their holdings. An investor group including ADIC, which manages $111 billion in assets, is reportedly preparing to sell the Shiba Park Building in central Tokyo for 160 billion yen ($1.3 billion). The group, which is led by Hong Kong-based real estate investor Asia Pacific Land, bought the office property in 2013 for approximately 125 billion yen.

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