Saturday 31st January 2015
NEWS TICKER FRIDAY, JANUARY 30TH: Morningstar has moved the Morningstar Analyst Rating™ of the Fidelity Japan fund to Neutral. The fund was previously Under Review due to a change in management. Prior to being placed Under Review, the fund was rated Neutral. Management of the fund has passed to Hiroyuki Ito - a proven Japanese equity manager, says Morningstar. Ito recently joined Fidelity from Goldman Sachs, where he successfully ran a Japanese equity fund which was positively rated by Morningstar. “At Fidelity, the manager is backed by a large and reasonably experienced analyst team, who enjoy excellent access to senior company management. While we value Mr Ito’s long experience, we are mindful that he may need some further time to establish effective working relationships with the large team of analysts and develop a suitable way of utilising this valuable resource,” says the Morningstar release - The Federal Deposit Insurance Corporation (FDIC) today released a list of orders of administrative enforcement actions taken against banks and individuals in December. No administrative hearings are scheduled for February 2015. The FDIC issued a total of 53 orders and one notice. The orders included: five consent orders; 13 removal and prohibition orders; 11 section 19 orders; 15 civil money penalty; nine orders terminating consent orders and cease and desist orders; and one notice. More details are available on its website - Moody's Investors Service has completed a performance review of the UK non-conforming Residential Mortgage Backed Securities (RMBS) portfolio. The review shows that the performance of the portfolio has improved as a result of domestic recovery, increasing house prices and continued low interest-rates. Post-2009, the low interest rate environment has benefitted non-conforming borrowers, a market segment resilient to the moderate interest rate rise. Moody's also notes that UK non-conforming RMBS exposure to interest-only (IO) loans has recently diminished as the majority of such loans repaid or refinanced ahead of their maturity date - The London office of Deutsche Bank is being investigated by the Financial Conduct Authority (FCA), according to The Times newspaper. Allegedly, the bank has been placed under ‘enhanced supervision’ by the FCA amid concerns about governance and regulatory controls at the bank. The enhanced supervision order was taken out some months ago, says the report, however it has only just been made public - According to Reuters, London Stock Exchange Group will put Russell Investments on the block next month, after purchasing it last year. LSE reportedly wants $1.4bn - Legg Mason, Inc. has reported net income of $77m for Q3 fiscal 2014, compared with $4.9m in the previous quarter, and net income of $81.7m over the period. In the prior quarter, Legg Mason completed a debt refinancing that resulted in a $107.1m pre-tax charge. Adjusted income for Q3 fiscal was $113.1m compared to $40.6m in the previous quarter and $124.6m in Q3 fiscal. For the current quarter, operating revenues were $719.0m, up 2% from $703.9m in the prior quarter, and were relatively flat compared to $720.1m in Q3 fiscal. Operating expenses were $599.6m, up 5% from $573.5m in the prior quarter, and were relatively flat compared to $598.4min Q3 of fiscal 2014. Assets under management were $709.1bn as the end of December, up 4% from $679.5bn as of December 31, 2013. The Legg Mason board of directors says it has approved a new share repurchase authorisation for up to $1bn of common stock and declared a quarterly cash dividend on its common stock in the amount of $0.16 per share. - The EUR faces a couple of major releases today, says Clear Treasury LLP, and while the single currency has traded higher through the week, the prospect of €60bn per month in QE will likely keep the euro at a low ebb. The bigger picture hasn’t changed, yesterday’s run of German data was worse than expected with year on year inflation declining to -.5% (EU harmonised level). Despite the weak reading the EUR was unperturbed - The Singapore Exchange (SGX) is providing more information to companies and investors in a new comprehensive disclosure guide. Companies wanting clarity on specific principles and guidelines on corporate governance can look to the guide, which has been laid out in a question-and-answer format. SGX said listed companies are encouraged to include the new disclosure guide in their annual reports and comply with the 2012 Code of Corporate Governance, and will have to explain any deviations in their reporting collateral. - Cordea Savills on behalf of its European Commercial Fund has sold Camomile Court, 23 Camomile Street, London for £47.97mto a French pension fund, which has entrusted a real estate mandate to AXA Real Estate. The European Commercial Fund completed its initial investment phase in 2014 at total investment volume of more than €750m invested in 20 properties. Active Asset Management in order to secure a stable distribution of circa 5% a year. which has been achieved since inception of the fund is the main focus of the Fund Management now. Gerhard Lehner, head of portfolio management, Germany, at Cordea Savills says “With the sale of this property the fund is realising a value gain of more than 40%. This is the fruit of active Asset Management but does also anticipate future rental growth perspectives. For the reinvestment of the returned equity we have already identified suitable core office properties.” Meantime, Kiran Patel, chief investment officer at Cordea Savills adds: “The sale of Camomile Court adds to the £370m portfolio disposal early in the year. Together with a number of other asset sales, our total UK transaction activity since January stands at £450m. At this stage of the cycle, we believe there is merit in banking performance and taking advantage of some of the strong demand for assets in the market.” - US bourses closed higher last night thanks to much stronger Jobless Claims data (14yr low) which outweighed mixed earnings results. Overnight, Asian bourses taken positive lead from US, even as Bank of Japan data shows that inflation is still falling, consumption in shrinking and manufacturing output is just under expectations. According to Michael van Dulken at Accendo Markets, “Japan’s Nikkei [has been] helped by existing stimulus and weaker JPY. In Australia, the ASX higher as the AUD weakened following producer price inflation adding to expectations of an interest rate cut by the RBA, following other central banks recently reacting to low inflation. Chinese shares down again ahead of a manufacturing report.” - Natixis has just announced the closing of the debt financing for Seabras-1, a new subsea fiber optic cable system between the commercial and financial centers of Brazil and the United States. The global amount of debt at approximately $270m was provided on a fully-underwritten basis by Natixis -

Sovereign wealth funds investing locally

Wednesday, 23 May 2012
Sovereign wealth funds investing locally Sovereign governments and sovereign wealth funds (SWFs) are investing less internationally than they have done at any point in the last three years, according to the third annual Invesco Middle East Asset Management Study. Gulf Cooperation Council (GCC) sovereign states have deployed wealth into local economies throughout the Arab Spring and SWFs show signs of diverting away from international trophy assets and other global investments. The findings come as something of a surprise given the current penchant for some of the GCC’s most high profile SWFs to continue to invest in strategic companies abroad. However, says the study, sovereign wealth fund surpluses may reduce despite oil price rises as local investment continues. http://www.ftseglobalmarkets.com/

Sovereign governments and sovereign wealth funds (SWFs) are investing less internationally than they have done at any point in the last three years, according to the third annual Invesco Middle East Asset Management Study. Gulf Cooperation Council (GCC) sovereign states have deployed wealth into local economies throughout the Arab Spring and SWFs show signs of diverting away from international trophy assets and other global investments. The findings come as something of a surprise given the current penchant for some of the GCC’s most high profile SWFs to continue to invest in strategic companies abroad. However, says the study, sovereign wealth fund surpluses may reduce despite oil price rises as local investment continues.

Invesco’s study has analysed sovereign revenues and defined the investment behaviours of major SWFs in the GCC region. These SWFs account for 35% of global SWF flows, representing $1.6 trn, a huge market which major global economies, including the UK, rely on for investment. This is Invesco’s third asset management study of the GCC region (comprising the United Arab Emirates, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman). 

Invesco worked with independent strategy consultants NMG to conduct an in-depth market study based on over 100 face-to-face interviews on retail and institutional investor preferences across the GCC. The study shows the international flow of money directly from GCC sovereign governments and from SWFs has changed considerably in light of the current unrest, with large commodity-linked surpluses in these regions increasingly being put to use locally. (Please refer to Figure 1)



Even so, and despite stable and high oil prices, the available surplus, or investable assets, of governments in the GCC region is forecast to reduce by 9% in 2012 (compared to 2011) and surplus forecasts have been revised downwards since the Arab Spring, says the study. This is illustrated by the fact that forecast funding rates for the recipient SWFs have declined this year.

The findings of the survey look to undermine some of the latest news to emerge from the mega SWFs of the GCC. The Qatar Investment Authority, one of the largest and most diversified sovereign wealth funds in the GCC for example continues to veer from the norm. The latest news from the Gulf is that the SWF is about to increase its allocation to Shell, which will add to a growing roster of western investments by the fund. The Anglo-Dutch company declined to say what the size of the QIA holding is, but stock exchange rules in the United Kingdom meant that any stake over 3% will automatically trigger a public statement. Other reports suggest that the Qataris are in the middle of negotiations to buy a stake in Italian oil major ENI. It already holds a minority stake in Total, the French energy group. The QIA has also recently bought into Xstrata, as well as Barclays Bank.         

Moreover, Abu Dhabi’s normally secretive SWF opened up last October with the release of an official report which showed that the sovereign wealth fund remains diversified across all major global markets. Although over a year old, according to the report, ADIA’s assets are largely allocated to developed equity investments. With an estimated $350bn in assets, the fund allocates 60% of its total portfolio to externally-managed indexed funds. Overall, roughly 80% of the fund’s assets are invested by external fund managers. Allocations to developed equity markets constitute 35% to 45% of the fund’s portfolio. Emerging market equities make up 10% to 20%. Government bonds make up 10% to 20% of the portfolio.

In terms of geographic prevalence, ADIA allocates 35% to 50% in North America, 25% to 35% in Europe, 10% to 20% in developed Asia, and 15% to 25% in emerging markets, according to the report. However, Invesco’s latest study may point to a sea change. The Invesco study did not elucidate the detailed investment strategies of individual funds.        

There are other deals in train. Most recently new banking venture NBNK has  reportedly held talks with Middle Eastern SWFs to bolster its bid for 632 Lloyds branches that are up for sale, according to a recent Reuters news item; NBNK refused to com­ment. The venture was set up in 2010 by former Lloyd’s of London insurance head Peter Levene, aiming to bring com­petition to a market dominated by four lenders. It is run by former Barclays and Northern Rock executive Gary Hoffman. Separately, the UK’s Sunday Telegraph reported that NBNK had held discussions with Qatar Holdings and Abu Dhabi's Mubadala fund.

One of the fund’s subsidiaries, Mubadala Healthcare (a business unit of Mubadala Development Company) and Dubai Health Authority (DHA) have signed a memorandum of under­standing to discuss several key collab­or­ation areas that will facilitate knowledge-sharing, partnership initi­atives and improved access to care for patients in Dubai. The initial areas for collaboration outlined in the MOU relate specifically to three of Mubadala Healthcare’s facilities—Wooridul Spine Centre, Tawam Molecular Imaging Centre and National Reference Laboratory—and focus on the facili­tation of patient and laboratory test referrals, knowledge exchange and the inclusion of these facilities in the Gov­ernment of Dubai’s Enaya network.

While the investment approaches of the GCC SWFs remain mixed, one thing looks certain. According to Invesco’s study, in 2011 funding rates grew at 13% compared to an increase in GCC government revenue of 25%, this year funding rates rose just 8%, despite GCC government revenue increasing by 31%. Funding for sovereign pension funds on the other hand rose from 8% growth in 2011 to 13% growth in 2012. There is an expectation that spending will continue to increase over time potentially outstripping commodity prices and shrinking surpluses further.

Of the sovereign surplus that is available for SWFs, those with local objectives are expected to benefit. Invesco forecasts SWF assets invested in benchmark driven SWFs who prioritise international asset manager products or ETFs have fallen by 1% since the beginning of the ‘Arab Spring’ in 2011. At the same time sovereign wealth fund assets allocated to SWFs investing locally, in infrastructure for example, have risen by 10%7, which illustrates a major shift (see Figure 2).

Nick Tolchard, head of Invesco Middle East commented: “It’s clear that sovereign states are redirecting revenues and SWF assets from international investments back into the Middle East. The most common change across the region is money into local wage inflation, with healthcare and education a real focus for Saudi Arabia and Oman. Major infrastructure is a focus for Qatar due to the World Cup, and there are significant developments taking place in Abu Dhabi as it seeks to grow and set up as a major financial centre.”

Tolchard continues: “Western governments, including the UK, have approached SWFs from the Middle East to help with economic recovery, but many will fight a losing battle. There is certainly less money to invest internationally so the stakes are higher. Those courting GCC money from outside the region will only win with a deep understanding of what is driving the thinking of SWFs, and a long term commitment to building ­bi-lateral relationships which add value to their investment policy.”

Last year, Invesco created the first ever framework that categorises the core objectives of SWFs and revealed the drivers behind the investment strategy and preferences of these huge investment funds.

Last year, the study revealed that traditional investment SWFs (diversification vehicles and asset managers) appeared to be favouring developed markets, with around 54% of GCC SWF assets held in this region with the highest exposure to North America (29%) and to Western Europe (19%). Investment in North America is now down this year at 14% and Western Europe down at 6%, as a result of the Eurozone crisis. The clear shift in terms of geographic allocation of investment money has been towards the local region. Investment in assets related to the GCC moved up from 33% to 56%, with local bonds seeing a rise from 6% of SWF investable assets to 14%. Property and infrastructure have also take a large proportion of the investable assets from these SWFs, 13% and 14% respectively.

 “The story this year is that it is no longer a given that large sovereign governments are going to direct their oil revenue surpluses around the globe, pumping cash into other global economies. There will be high profile, strategic investments like the proposed RBS deal, or indeed other large trophy assets, but it’s a changed market. There will be contestable assets for fund managers in core relevant markets but with more money being deployed into the local economies it is likely to be a much more competitive landscape as long as the unrest continues,” says Tolchard.

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