Government Fund Weekly News Roundup — Annual Results, Dwindling Reserves and Mass Resignations

July 08, 2016 by SWC Editors

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Empty Tank
In the news this week: Singaporean state investor Temasek Holdings and Abu Dhabi’s International Petroleum Co. (IPIC) announce their latest annual results. Russia’s government continues to burn through its stabilization fund to plug its yawning budget deficit. And the board of Iran’s sovereign wealth fund sees a raft of resignations in a skirmish over executive pay.The Results Are In for IPIC and Temasek

The Results Are In for IPIC and Temasek

Abu Dhabi’s IPIC and Singapore’s Temasek released their annual results this week — and both reported sharp declines in the value of their portfolios.

In Singapore, Temasek released its annual results for the fiscal year ending March 31, 2016. The value of its portfolio dropped by 9 percent, wiping S$24 billion ($17.8 billion) off its holdings — and marking its first loss in seven years. Temasek’s portfolio is now worth S$242 billion. Temasek remains upbeat, despite being hit hard by slowing global growth, particularly in China; the investment team said it was "comfortable" with the resilience of its portfolio.

Temasek’s future plans include further expansion in the U.S., which received the largest share of Temasek’s investments last year. To service its growing U.S. portfolio, Temasek will open its second office in the country before the end of the year in San Francisco (it already has an office in New York City). 

Temasek’s exposure to China cost it rather dearly last year, but having a quarter of its assets in the country still doesn’t grant Temasek any special treatment in the world’s second-largest economy. News broke this week that Shenzhen-based Internet bank WeBank had turned down equity from Temasek and other international investors under pressure from local regulators. Temasek and New York-based private equity firm Warburg Pincus had been planning a $450 million capital-raising effort for WeBank at the beginning of the year, but the Chinese financial regulator nixed the idea of foreign ownership in the country’s leading online bank. 

Abu Dhabi’s IPIC, meanwhile, has been hit hard by stubbornly low oil prices, which have reduced the fund’s revenue inflows. IPIC saw its total assets under management fall by $8.5 billion to $58 billion as of December 31, 2015 — a decline the fund attributed to impairment losses on its oil and gas assets. 

Declining asset values aren’t IPIC’s only problem: Its non-energy arm, Aabar Investments, is embroiled in legal action with Malaysia’s troubled, debt-ridden state investment fund 1Malaysia Development (1MDB). Aabar has taken 1MDB to court over two missing $1.75 billion bond payments it claims 1MDB still owes; 1MDB, on the other hand, asserts both payments have already been made.

Russia’s Government Runs on Empty 

The challenge of budgeting for dwindling hydrocarbon revenue resonates in Russia, where the government is burning through its Reserve Fund, an economic stabilization fund, to plug its yawning budget deficit. On January 1, 2014, the Reserve Fund contained $87.13 billion, By next year, it will be empty. Russia is seeking to shore up its budget, which has been battered by the failure of oil prices to recover significantly from their 2015 slump; the country is also suffering from Western economic sanctions imposed over it military occupation of Crimea. But even raiding a piggy bank as vast as the Reserve Fund will not be sufficient to balance the government’s books: Russia also plans to spend around one-third of another fund, the National Wealth Fund, between 2017 and 2019. Policymakers will do so despite the National Wealth Fund originally being earmarked to cover long-term deficits in the country’s pension system. 

Irate in Iran: Mass Resignations at the National Development Fund 

An ongoing row over high compensation packages at Iran’s sovereign wealth fund, the National Development Fund of Iran (NDFI), has sparked an executive exodus. Iranian President Hassan Rouhani has accepted the resignations of NDFI’s director and executive board members. The scandal erupted in the wake of leaked pay data, which revealed the earnings of several of the country’s top officials.

NDFI’s chief executive, Safdar Hosseni, was among those stepping down; he had reportedly been receiving $18,700 per month in salary and other compensation for his role. Although Iranian law states that the highest government salaries should be no greater than seven times those of the lowest-paid government employees, the recent leak revealed some executives at state-owned firms, including NDFI, were receiving more than 50 times the salaries of the lowest-paid workers.

The recent revelations were also the first time compensation packages at NDFI have come to light despite the fund being a member of the International Forum of Sovereign Wealth Funds (IFSWF), an international body that promotes transparency among its member organizations.

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