Government Fund Weekly News Roundup — SWFs Push Back On Management Fees

May 13, 2016 by SWC Editors

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Bellagio Hotel, Las Vegas

In the news this week: Sovereign wealth funds reconsider their relationships with asset managers. The Oman Investment Fund participates as a cornerstone investor at a real estate IPO in Singapore. And Norway withdraws more capital from the Government Pension Fund Global.

Managing the Managers

Last year, the financial press was awash with stories about how sovereign wealth funds were redeeming capital from their asset managers in the wake of the oil price crash. While it is true that some funds have been withdrawing money from external firms, the reasons go deeper than the collapse in oil prices.

The Sovereign Wealth Center’s 2015 annual report, published this week, finds that sovereign funds are becoming more discerning investors, keen to gain more control over their assets. And as they in-source more of their operations, they are demanding more from their external partners: challenging managers over their performance records and pushing back on fees.

The China Investment Corp. (CIC) is a good example. Roslyn Zhang, who oversees fixed income and absolute-return strategies at CIC, spoke at a hedge fund conference at the Bellagio Hotel in Las Vegas this week — and her comments epitomized sovereign wealth funds’ increasingly assertive stance toward their managers.

Zhang said she has been "disappointed" by the performance of the fund’s hedge fund partners and wants to reallocate capital to more "skillful" firms. Zhang added that a "herd mentality" had taken hold in the hedge fund industry, making its traditional two-and-twenty fee structures — in which managers charge a fee of two percent of assets managed, as well as a 20 percent cut of profits — harder to justify.

"All kinds of strategies, they run different strategies, they all have the same trade," Zhang said. "Should we pay 2 and 20 for treatment like this?"

The New Zealand Superannuation Fund has also been shifting its approach to external manager relationships. This week, NZ Super sold small stakes in five real estate funds to Zug, Switzerland-based private equity firm Partners Group.

In a statement, NZ Super's Head of Investments, Fiona Mackenzie, said the move was consistent with the fund's ongoing strategy of arranging "fewer, deeper relationships with external managers." Rather than invest in a broad roster of funds, NZ Super is looking to work more closely with its partners to achieve specific strategic objectives.

OIF Acts as Cornerstone Investor at Real Estate IPO

Like NZ Super, the Oman Investment Fund (OIF) is shifting its focus away from fund investments toward closer relationships with management firms.

This week, OIF agreed to participate as a cornerstone investor at the initial public offering (IPO) of Manulife U.S. Real Estate Management (MUREM), the global real estate unit of Toronto-based financial services company Manulife Financial Corp. In buying a stake in MUREM — rather than simply investing in one of its real estate funds — OIF will gain more control over how its capital is allocated.

MUREM has started taking orders from retail investors for the $470 million IPO in Singapore, in what will be the city-state’s biggest equity fundraising in almost two years. Manulife suspended a previous attempt at an IPO in July last year, citing weak market conditions and reduced investor appetite.

Norway’s Government Increases SWF Withdrawals

According to the Norwegian government's revised 2016 budget, issued on Wednesday, it will withdraw 84.2 billion kroner ($10.25 billion) from its sovereign wealth fund, Government Pension Fund Global (GPFG), this year.

Although this figure is higher than 80 billion kroner withdrawal the government projected in February, it represents just 1.2 percent of the gargantuan fund’s total assets under management, which stood at 7 trillion kroner as of March 31, 2016. The government will use the withdrawal to provide fiscal stimulus and stave off recession in an economy battered by low oil prices.

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