Government Fund Weekly News Roundup — Good Governance, Bad Governance
In the news this week: Singapore’s GIC and
Canada’s Caisse de dépôt et placement
du Québec rearrange their management teams as
Malaysia’s scandal-hit 1Malaysia Development
slides deeper into the mire. China Investment Corp. and Temasek
Holdings bid for the Chinese operator of KFC and Pizza
In 1991, as the Salomon Brothers bond-trading scandal shook
Wall Street, Warren Buffett responded with one of his trademark
aperçus. "Trust is like the air we breathe," he said.
"When it’s present, nobody notices. But when
it’s absent, everybody notices."
The same might be said of good governance. If an investment
organization is to run smoothly — and hit its return
targets — it needs an effective management structure.
But operational matters are too often taken for granted.
Aware of the vital importance of good governance, two major
state-owned funds fine-tuned their organizational models this
week. At Singapore’s GIC, each asset class will now be overseen
by a separate chief investment officer. In a
statement, GIC’s Group President Lim Siong Guan
said the move reflected the "maturing of GIC’s
investment talent" and strengthened the fund’s
"capacity to deal with an investment environment of lower
returns, increased volatility, and greater uncertainty."
In Canada, government pension fund Caisse de dépôt et placement du
Québec (CDPQ) introduced similar changes to its
model. Under the new structure, CDPQ's private equity teams
will report directly to CIO Roland Lescure (previously, the CIO
had no direct oversight of the fund's investments in private
markets). The fund also created a new department, the
Depositors and Total Portfolio Division, to control top-down
asset allocation across the fund's various subsidiaries, and
introduced a new unit called CDPQ Infra to oversee the fund's
By streamlining their management structures to ensure greater
transparency and accountability, these massive government
investors are likely to gain long-term benefits. Nevertheless,
the changes at GIC and CDPQ attracted almost no comment in the
mainstream financial press.
In Malaysia, on the other hand, the media continues to be
transfixed by a spectacular case of governance — and
trust — gone awry. Authorities in five countries are
now investigating state-owned investment organization 1Malaysia
Development (1MDB) over alleged corruption and financial
mismanagement. Abu Dhabi’s International Petroleum Investment Co.
(IPIC), cut its long-standing business ties with 1MDB on
Monday amid the controversy.
To modify Buffett’s observation: When good
governance is absent, everybody notices. Even Hollywood.
GIC’s $1.3 Billion Infrastructure Deal
In addition to overhauling its organizational structure, GIC
sealed an eye-catching infrastructure deal this week. The fund
has agreed to acquire a minority stake in U.S.-based
electricity transmission company ITC Holdings Corp. for $1.3
In February 2016, Canadian utility operator Fortis announced it
would acquire ITC in an $11.3 billion takeover, and began
marketing a 19.9 stake in the American firm in order to finance
the massive deal. GIC will buy the stake from Fortis when it
completes the takeover later this year.
In a statement, Rhys Evenden, GIC's head of infrastructure for
North America, cited ITC's "high quality transmission platform"
and "the strength of Fortis' management team" as factors that
attracted the Singaporean fund to the deal.
According to Bloomberg data, Fortis’
urgent need for financing meant that GIC was able to buy the
stake at a discount of 7.5 percent to its market value.
CIC and Temasek Hungry for Yum!
According to news reports, both the China Investment Corp.
Singapore’s Temasek Holdings
are interested in
buying a majority stake in the Chinese unit of Louisville,
Kentucky-based fast food giant Yum! Brands, which owns the
Taco Bell, Pizza Hut and KFC brands.
More than 7,100 Pizza Hut and KFC outlets operate on the
Chinese mainland, giving Yum! Brands the largest market share
of the country’s fast-food sector. CIC is
reportedly leading a consortium of investors that includes
buyout firms KKR & Co. and Baring Private Equity Asia in
a bid for the business. The consortium faces competition from
Temasek and Chinese investment firm Primavera Capital, both
of which are separately vying for a stake in Yum! Brands'
Chinese operations. The deal could value Yum! China at nearly