Government Fund Weekly News Roundup: Amid Market Turmoil, SWFs Reaffirm Long-Term Outlook

January 22, 2016 by SWC Editors

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Bear Photograph: Eric Kilby

In the news this week: Sovereign wealth funds convene at the World Economic Forum in Davos, Switzerland to launch a new long-term equities index, while Singapore’s Temasek Holdings and Malaysia’s Khazanah Nasional invest in Chinese technology start-ups. 

Government Funds Launch New Long-Term Index

In Alejandro Gonzalez Iñárritu’s new film, The Revenant, Leonardo DiCaprio’s character crunches about in a snowy, hostile landscape, worrying about bears. At the meeting of the World Economic Forum in the Swiss town of Davos this week, investors and policymakers did much the same, worrying about the onslaught of a bear market in global equities.

International stocks have endured a near-catastrophic start to 2016, with concern over oil prices and the health of the Chinese economy causing equities in France, Japan and the U.K. to drop 20 percent below their 2015 peaks — that’s bear-market territory.

Media speculation has suggested sovereign wealth funds have contributed to the panic by selling shares to support their sponsoring governments’ budgets, but little evidence exists to support that assertion. In fact, government investors came together at Davos to launch a scheme that reaffirms their commitment to long-term investment principles in the face of short-term market volatility.

On January 21, six sovereign wealth and government pension funds issued a joint statement announcing their support for the S&P Long-Term Value Creation Index, a new benchmark designed to track companies based on indicators of long-term performance. The new index was developed by Focusing Capital on the Long-Term (FCLT), a joint initiative between the $215 billion Canada Pension Plan Investment Board  (CPPIB) and New York-based consulting firm McKinsey & Co, together with Wall Street index provider S&P Dow Jones Indices. The index incorporates both qualitative and quantitative factors, including standards of corporate governance, leverage ratios and return on equity.

Five other government funds voiced their support for the new index: Denmark’s $103 billion pension fund ATP, Singapore’s $343 billion GIC, the $20 billion New Zealand Superannuation Fund, the $118 billion Ontario Teachers’ Pension Plan (OTPP) and PGGM, which manages $208 billion on behalf of Dutch pension funds.

These institutions have allocated a total of $2 billion to funds that will track the new index — and that figure is expected to rise significantly as more government investors make use of the new tool to assess companies’ value over the long term.

China Tech Investments

In China, two state investors allocated capital to technology start-ups this week, signalling their confidence in the long-term prospects of the Chinese economy despite the recent stock-market turmoil.

Singapore's state investor $194 billion Temasek Holdings is reportedly among three investors committing $3.3 billion in new capital to China’s largest online entertainment booking platform, Meituan-Dianping, which was formed by the merger of two rival start-ups last year. The fundraising, which values the company at $18 billion, is the world's largest private fundraising round for a venture-backed company. Other investors supporting Meituan-Dianping — China’s biggest online seller of movie tickets and restaurant bookings — include Shenzhen-based internet company Tencent Holdings and Russian private equity firm DST Global.

Malaysia's state fund $35 billion Khazanah Nasional has led a $160 million capital-raising effort on behalf of Hong Kong-based financial technology start-up WeLab, China’s largest provider of mobile lending and credit analytics platforms. The investment gives Khazanah exposure to the country’s growing consumer loan market, which is being driven by its expanding middle class.

Infrastructure Partnerships

OTPP and Borealis Infrastructure, a unit of Ontario Municipal Employees Retirement System (OMERS), a $55 billion pension fund, are reportedly in discussions to team up on a bid for the gas-distribution arm of National Grid, the British multinational utilities company. The distribution network covers parts of northern England and North London and is valued at approximately £11 billion ($15.7 billion). OTTP and OMERS worked together on a similar deal in 2004, when they formed a consortium with British energy company SSE to acquire gas distribution networks in Scotland and southern England from National Grid (then National Grid Transco) for £3.2 billion.

The Russian Direct Investment Fund (RDIF), a $10 billion development fund, and Dubai-based seaport operator DP World have announced the launch of a new joint venture, DP World Russia. The partners said the venture will invest up to $2 billion in seaports and other transport infrastructure in Russia. DP World owns 80 percent of DP World Russia, while RDIF holds the remaining 20 percent.

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