In the news this week: Abu Dhabi prepares to merge
two of its SWFs into one $135 billion giant. Canadian
pension funds keep calm and look to bag bargains in
discounted British markets. And Norway’s SWF
overseers flex their muscles in a fresh display of
shareholder activism.
Abu Dhabi’s SWF Merger: Oil and
Water?
The emirate’s government is in negotiations
to merge two of its SWFs: the International Petroleum
Investment Co. (IPIC), which has $68 billion in assets
under management, and the similarly-sized Mubadala
Development Co. The combined entity would oversee total
assets of approximately $135 billion — placing it
among the largest funds in the region by assets under
management — and have debt of roughly $42
billion.
Although both IPIC and Mubadala focus on the development
of Abu Dhabi’s economy, IPIC supports the
domestic oil industry by buying energy—related assets
worldwide, while Mubadala seeks to promote economic
development by investing in research-intensive industries
to diversify the economy away from the oil sector. A merger
between them would therefore be highly complementary;
neither fund is currently expected to make any significant
changes to its investment strategy. According to
IPIC’s Chairman, Sheikh Mansour bin Zayed Al
Nahyan, the focus will instead be on generating "greater
benefits and enhanced economic value to the government of
Abu Dhabi," while also offering economies of scale and
streamlining any overlapping remits.
Moreover, given Mubadala’s strong
reputation for accountability and transparency, a merger
could be seen as a bold move in clarifying the corporate
culture of the less-open IPIC. This development would be an
important step for IPIC in the wake of the ongoing legal
quagmire it faces over two missing $1.75 billion bond
payments ostensibly made by scandal-hit Malaysian
development fund 1Malaysia Development (1MDB).
The merger could be completed as early as 2017. Sheik
Mansour believes the process will offer a number of
opportunities for Abu Dhabi to realize synergies and growth
across multiple sectors, including aerospace, energy,
industry, healthcare, real estate and technology.
Life After Leave: Keep Calm and Bag Bargains
In the wake of Britain’s so-called Brexit
vote, sovereign wealth fund executives have hastened to
reassure their stakeholders that their recent acquisitions
in the U.K. — largely office buildings and
infrastructure projects — are still holding their
value. Kuwait’s SWF, the Kuwait Investment
Authority (KIA), expressed confidence in its portfolio of
British assets despite the market upheaval sparked by the
results of the referendum. Minister of Finance Anas
al—Saleh promised Kuwait’s cabinet that
KIA’s U.K. investments — which are
largely made up of real estate, infrastructure and
government debt — are "high quality and
long—term."
Japan’s $1.2 trillion pension-management
behemoth, the Government Pension Investment Fund (GPIF),
also announced it was relatively unruffled by the
aftershocks of Brexit. GPIF’s CEO Norihiro
Takahashi has pledged that the political upheaval in the
U.K. won’t affect the fund’s new
equity-focused investment strategy because he believes that
prices will soon settle. GPIF has historically held a
conservative, bond-heavy portfolio; however,
Japan’s aging population has required the fund
to increase allocations to riskier asset classes, including
stocks, to achieve higher returns.
Two Canadian pension plans — organizations that
have historically been significant investors in U.K.
infrastructure and real estate — seized on the
vote as an opportunity to search for discounted deals.
Canada Pension Plan Investment Board (CPPIB) and Ontario
Teachers’ Pension Plan (OTPP) geared up for a
spot of shopping as the value of sterling plunged to low
against the dollar not seen since 1985. CPPIB and OTPP,
which have exceptionally long—term investment horizons, are
well-equipped to look beyond short-term volatility for
investments that will deliver positive returns in the
decades ahead.
Brexit’s Unintended Consequences
While Canadian pension plans were browsing Britain for
cut-price deals, the electorate’s decision to
leave the European Union created some unexpected fallout in
Ireland. Finance Minister Michael Noonan announced that he
will have to step back and reconsider whether plans to
create a €2.5 billion ($2.7 billion) rainy-day savings
fund for Ireland would still be viable in a post-Brexit
world. The aim of the fund was to stabilize the Irish
economy in the event of future shocks, but — with
models predicting Brexit could shave a cumulative 1.6
percent off Ireland's GDP over the next two years
— the capital to fund it may not be
available.
The Qatar Investment Authority (QIA) may also have been
hit by Brexit. QIA is reportedly considering canceling the
sale of an office building it owns in the heart of
London’s financial center, Canary Wharf.
The building, 1 Cabot Square — which QIA put up
for sale earlier this year — is currently leased
to Zürich—based financial services giant Credit
Suisse, a company in which QIA owns a sizeable stake.
Mounting uncertainty regarding the U.K.’s
relationship with the E.U. going forward may have given QIA
jitters: Credit Suisse’s London base proves
key access to the E.U.’s single market in
services under so-called passporting rules that are
unavailable to the financial services firm in its native
Switzerland. If the U.K. lost these rights
post-Brexit, Credit Suisse’s residency at 1
Cabot Square would therefore be in question — and
selling the building without a definitive long—term tenant
might negatively impact its sale price.
Bulking Up: NBIM Continues to Flex Its Muscles
Norges Bank Investment Management, the arm of the
central bank that manages the country’s $870
billion sovereign wealth fund, continues to flex its power
as an angry shareholder. Following closely on last
week’s scorching vote against all of German
automaker Volkswagen’s current and former
executives, as well as against its entire 27-strong
supervisory board, NBIM is once again making its voice
heard by divesting from two oil-and-gas exploration
companies.
NBIM has dropped its 2.85 percent stake in
London-headquartered Cairn Energy and its 0.8 percent
holding of Dallas-based Kosmos Energy, citing a "violation
of ethical norms" in relation to the two
firms’ continued operations on behalf of
Morocco off the coast of the disputed territory of Western
Sahara. Morocco annexed the territory when it gained its
independence from Spain in 1975, and Western Sahara has
been fought over ever since. The Algeria-based Polisario
Front has long waged a guerrilla war against Moroccan rule,
demanding autonomy for Western Sahara, but —
despite a U.N.—brokered ceasefire deal in 1991 that paved
the way for a referendum on independence — no such
vote has yet been held.