New energy technologies are increasingly drawing the
attention of funds.
In the news this week: Sovereign and government
funds, including Japan’s Government Pension
Investment Fund and AustralianSuper, are looking at new ways
to put their capital to work. The latest financial results
from Singapore’s GIC and Canada’s
PSP Investments reveal the impact of tough market conditions.
Meanwhile, Abu Dhabi’s Mubadala Development Co.
is taking up a significant stake in alternatives manager
Investcorp — and new energy and agricultural
technologies attract interest.
Japanese and Australian Funds Seek to Unlock New
Strategies
Falling returns from traditional investments are leading
sovereign and government funds to investigate new approaches
to put their capital to work. The Japanese government is
considering allowing Japan's $1.3 trillion Government Pension
Investment Fund (GPIF) to invest 5 percent of its assets
— more than $55 billion — in private
equity, infrastructure and real estate. GPIF had not
previously been allowed to invest directly in these asset
classes, having focused mainly on domestic government bonds
since its creation in 2001. However, this conservative
approach is being overhauled as Japan’s aging
demographics put pressure on the fund’s assets
and force it to seek higher returns. GPIF is currently not
allowed to invest directly in private equity, infrastructure
or real estate, so it is scouting for third-party fund
managers to help it gain access to private markets. GPIF is
likely to award mandates to global private equity firms in
the coming months.
Meanwhile, Australian superannuation and sovereign funds plan
to take up the slack as banks tighten their lending
practices, with executives from AustralianSuper and the
Future Fund targeting direct-lending opportunities. While
government funds have traditionally been investors rather
than lenders, their long-term capital could allow them to
offer attractive bespoke deals for long-term borrowers and
reap comparatively higher returns in a low-yield environment.
Roger Knott, who joined pension fund AustralianSuper 18
months ago, told a regional conference that executives at the
A$95 billion ($72 billion) fund have received strong
referrals from banks. James Waldron, a manager of debt and
alternatives at the Future Fund, Australia's A$117.4 billion
($88.3 billion) sovereign wealth fund, said that as
regulations tightened, funds could be more flexible lenders
than banks.
Tough Market Conditions Weigh on Results
Two major funds revealed falling returns in their latest
financial results. Singaporean sovereign wealth fund
GIC’s latest report for the financial year
ending March 31, 2016 showed its 20-year annualized rate of
return fell from 4.9 percent in 2015 to 4 percent in 2016.
Depressed bond yields, low interest rates and stock market
volatility weighed on GIC’s results in the most
recent reporting period — factors the fund expects
to persist and dampen returns over the coming decade. GIC has
pledged to strive harder to reduce portfolio costs, but Lim
Chow Kiat, the fund’s deputy group president and
group CIO, warned of "modest growth" in the years to come.
Canadian pension fund manager the Public Sector Pension
Investment Board (better known as PSP Investments) released
annual results for the fiscal year ending March 31, 2016. Net
investment income was down significantly compared to the
previous year, dropping from C$13.97 billion ($10.71 billion)
in 2015 to C$1.1 billion ($0.84 billion) in 2016. The decline
was attributable, in part, to PSP Investments' lower returns
from private equity in 2016 and a loss of C$2.5 billion in
public markets. The fund did increase its net assets under
management, however, which rose by 4.3 percent over the past
year, from C$111.97 billion in 2015 to C$116.76 billion in
2016.
Mubadala Takes 20 Percent in Alternatives Manager
Investcorp
Abu Dhabi's sovereign fund Mubadala Development Co. is buying
a 20 percent stake in New York-based alternative investment
manager Investcorp, according to a company announcement. The
value of the deal was not disclosed. Mubadala will take a
9.99 percent ownership stake immediately and expects to
acquire a further 10.01 percent following regulatory
approvals. Investcorp's shareholders already include
institutions from United Arab Emirates, Bahrain and Qatar,
and include prominent individuals and family offices.
Investcorp, which was founded in 1982, provides clients
access to corporate and real estate investment opportunities
among other products. It has offices in the U.S., U.K. and
throughout the Middle East.
Green Energy Draws Canadian and Australian
Dollars
Green technologies have been attracting considerable
investment interest from sovereign wealth funds, with energy
deals seen in both Canada and Australia. Canadian pension
plans Ontario Teachers’ Pension Plan (OTPP) and
the Public Sector Pension Investment Board (better known as
PSP Investments) have topped up their stakes in London-based
renewable-energy holding company Cubico Sustainable
Investments by buying out the interest of their investment
partner, Spanish banking group Banco Santander. The three
parties have each owned a third of Cubico since May 2015,
when the pension funds bought in after Santander transferred
a €2 billion portfolio of 19 renewable infrastructure
assets into Cubico. Now, OTPP and PSP Investments will each
own 50 percent of Cubico.
Meanwhile, Sydney-based energy retailer AGL Energy, in
partnership with the Future Fund and Brisbane-based
investment manager Queensland Investment Corp. (QIC) have
established an investment vehicle called Powering Australian
Renewables Fund. The fund will plans to spend up to A$3
billion ($2.2 billion) to acquire two existing AGL
solar-power plants, and will develop renewable energy across
the country.
Innovative agriculture also drew sovereign wealth fund
interest. The Alaska Permanent Fund Corp. (APFC), the agency
that manages the U.S. state's sovereign wealth fund, has led
a $100 million capital-raising effort for Boston-based
agriculture biotechnology start-up Indigo. The company
researches and produces new seeds, coated in microbes, which
result in higher crop yields and more efficient water use.