Government Funds Weeklys News Roundup — Four Countries Consider Forming New Sovereign Funds, but the Embattled Libyan Investment Authority Faces Further Upheaval

August 19, 2016 by SWC Editors

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Wish you were... a Caribbean paradise with its own sovereign wealth fund?

With turquoise waters, white sandy beaches and temperatures averaging between 80 and 90 degrees Fahrenheit year-round, the Caribbean archipelago of the Turks and Caicos Islands has plenty to boast about already. Now, the British Overseas Territory is on the cusp of creating a sovereign wealth fund — and its not alone. Indonesia and Turkey are also in the process of creating new sovereign funds, while the U.K. has consulted on setting up a state-owned fund to manage any future proceeds from shale gas extraction. Meanwhile, Libya’s decade-old sovereign wealth fund, the Libyan Investment Authority (LIA), is undergoing further upheaval sparked by the resignation of one of its rival chairmen.

Grand Turk to Grand Turkish Projects: New Government Funds Abound

The government of Turks and Caicos Islands (TCI) is actively preparing legislation to create a sovereign wealth fund (SWF). Policymakers expect to submit the proposal to the House of Assembly, located in Cockburn Town on the island of Grand Turk, before the end of 2016. The new entity would be funded from future budgetary surpluses and will have several functions, including funding infrastructure development and offering an emergency contingency fund to deal with the aftermath of natural disasters, such as hurricanes. The SWF is also expected to support the country's future credit rating and have a heritage element to promote intergenerational wealth transfer. Other Caribbean nations have also recently moved to set up SWFs, including Guyana in November 2015 and Suriname in April 2016.

Meanwhile, an ocean and a continent to the east, Turkey is planning a fund of its own in what appears to be a reactionary display of patriotic bombast following a recent failed military coup. Turkey’s Minister of Finance, Naci Ağbal, put a draft law to set up a new SWF before the country’s parliament on August 9. Late in the day on August 16, Turkey’s parliamentary planning and budget commission approved the legislation. The new SWF, which will receive funding from assets transferred by Turkey’s privatization high council and from the budget surplus created by sales of select public assets, will be tasked with minimizing fluctuations in the economy and providing funding for mega-projects in infrastructure-hungry Turkey.

Turkey’s announcement was followed closely by news from Indonesia, where the government is reportedly planning a shake-up of state enterprises with the goal of their ultimate reorganization as part of a new super-holding company. Several state-owned entities, including  oil producer Pertamina, are included in the list of probable candidates for the new holding company, which might have as much as $320 billion in assets at its launch. Inspiration for the holding-company structure — and its inner workings — is said to have come from neighboring Malaysia’s sovereign wealth fund, Khazanah Nasional.

Though both Norway and the U.K. struck oil beneath their respective North Sea territorial waters at roughly the same time, in the early 1970s, their governments’ respective responses have been diametrically opposed. While Norway stashed the cash in a sovereign wealth fund structure that has since grown into an $860 billion investment giant, the U.K. spent most of its excess revenue as profits flowed. Mindful of the lost opportunity, British policymakers, under the leadership of new Prime Minister Theresa May, have proposed that some of the proceeds from hydraulic fracturing of bedrock for shale gas reserves (known as "fracking") should be put into a form of state-owned-and-operated wealth fund. However, rather than investing for the long-term, the government appears to be more focused on immediately disbursing a proportion of the revenue to local residents and communities. Geological surveys have indicated that shale gas could be abundant in certain areas of the U.K., but the process remains controversial with high levels of local opposition. To date, no commercial production has taken place.

Libyan Vida Loca: Further Upheaval as One of the LIA’s Rival Chairmen Steps Down

The chairmanship of Libya’s $67 billion sovereign wealth fund, the Libyan Investment Authority (LIA), has been in dispute since the country slid into civil war in 2011 after the deposition of Muammar Gaddafi. Now Hassan Bouhadi, one of the two men claiming this role, has stood down, citing the difficulties in conducting business in a country torn by civil war. Bouhadi was appointed by the internationally-recognized government of national accord (GNA), which currently rules in exile in the eastern Libyan city of Tobruk after officials were forced from the capital, Tripoli, by a rival Islamist government in October 2014. The GNA has replaced Bouhadi as chairman with a five-member caretaker committee; how long the caretaker committee will control the LIA has not been determined.

Bouhadi’s rival, AbdulMagid Breish, is part of the Tripoli government and was initially appointed to role as chairman the LIA in June 2013 — but stepped aside in the summer of 2014 to allow an investigation into his affairs and conduct. Breish claims to have been subsequently reinstated as LIA’s chairman by the Libyan Court of Appeal, which is based in Tripoli.

Since the outbreak of fighting, the LIA has been subject to sanctions freezing its international assets, which are worth approximately $20.1 billion, to prevent them being misappropriated during the chaos. Although the GNA has since been able to reunite other national institutions split by the fighting, such as state oil firm National Oil Corp., the leadership of LIA — which has been run from temporary offices in Malta since the outbreak of the fighting — remains unresolved. The two parties have not even been able to agree on a Web address: The GNA runs a Malta-based website for the fund, while the Tripoli government operates a website for the LIA out of Libya.

Banking, Biotech and Online Shopping: Singapore’s Temasek Adds to Its Holdings

A filing released by the U.S. Securities and Exchange Commission on August 15 offered a glimpse into the portfolio strategy of Singaporean state investor Temasek Holdings, revealing that it continues to track long-term demographic and economic shifts, playing on the differences between emerging and developed markets. Temasek is particularly bullish on biotech, healthcare and pharmaceutical companies; the institution has more than half-a-dozen large holdings in listed companies in these sectors. As the population in the developed world ages — and those in the developing world become richer and can afford better access to healthcare — Temasek anticipates a greater global need for healthcare and pharmaceutical services and products.

Meanwhile, Temasek also disclosed the acquisition of 2.55 million American depositary receipts (ADRs) of India’s largest private-sector bank, ICICI Bank, in the second quarter of 2016. These ICICI shares were worth approximately $18 million as of June 30. India’s population — second in size only to China — remains largely underserved by banks, leaving a sizeable market for financial providers such as ICICI to tap.

Temasek also revealed a sizable investment in Wellington, Florida-based aircraft-interiors specialist B/E Aerospace, buying 2.1 million shares in the company.  B/E Aerospace specializes in interior fittings for commercial, military and private jets. Over the same period, Temasek also increased its exposure to Chinese-commerce giant Alibaba by approximately 6.5 million shares, ending the second quarter with 54.08 million shares in the rapidly-growing company.

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