Monday 27th April 2015
NEWS TICKER: MONDAY, APRIL 27th 2015:Luc Luyet, CIIA – Senior Market Analyst AT Swissquote says that yesterday, “the SNB surprised the market by announcing that the number of sight deposit account holders that are exempt from negative interest has been reduced. This decision doesn’t change much the domestic banks’ situation as the “20 times the minimum reserve requirement” rule is still running. On the other side, the institutions associated with the Confederation, such as the pension fund of the Confederation or the pension fund of the SNB, are no longer exempt of negative interest. Consequently, only the account holders of the national social security system are still fully exempt.” - High yield debt issuance remains buoyant. Issuance volume for the week ending April 17, 2015, slowed down a bit from the previous week, but remained strong. Junk bond, or high-yield debt, issuers continued to issue bonds as yields remained favourable. High-yield debt is tracked by the SPDR Barclays Capital High Yield Bond ETF and the iShares iBoxx $ High Yield Corporate Bond Fund. According to data from S&P Capital IQ/LCD, dollar-denominated bonds amounting to $10.75bn were issued across 16 transactions in the week ending April 17th. The issuance volume fell by 3.2% from the week ending April 10. Pricing was evenly spread across the week. The number of transactions fell from 18 to 16 week-over-week. Last week brought the total US dollar issuance of high-yield debt to $115.8bn in 2015 YTD, up some 15% from the same period in 2014, the bulk of which is refinancing of older debt - Moody's says EMEA auto ABS performance remained stable during the three-month period ending February 2015. The sector's average performance trend was positive in terms of delinquency ratios and cumulative losses. The 60+ day delinquencies decreased to 0.66% in February 2015 from 0.77% in February 2014, while cumulative defaults decreased to 1.06% from 1.20% over the same period. This decrease was due mainly to the good performance of the German and Dutch markets. The prepayment rate increased slightly to 13.49% in February 2015 from 13.30% a year earlier. As of February 2015, the pool balance of all outstanding rated auto ABS transactions was €27.55bn - According to Sino specialists Red Pulse, China’s State Council is considering allowing daily repatriation for QFII. Currently, RQFII enjoys T+1 repatriation while QFII is restricted to T+5. QFII is the largest channel for foreign investment into China with quota of USD150bn, however, only half of the quota is in use, like at least partly due to the five-day repatriation stipulation - Malaysia’s state pension fund will offer a Shari’a-compliant investment option for its members by 2017, Prime Minister Datuk Seri Najib Razak said today. Najib says it will create the largest Shari’a fund of its kind in the world. Malaysia has one of the world’s largest Islamic finance sectors and the authorities are keen to develop it further. They envision the industry accounting for 40% of the country’s total banking assets by 2020 compared with latest figures of around 23% released last year. The $160bn (MYR577.4bn) Employees Provident Fund (EPF) already invests about a third of its portfolio in stocks and bonds that comply with Islamic principles, which ban interest payments and pure monetary speculation. The fund reportedly hired consultants last year to study the feasibility of a state-backed pension fund focusing entirely on Shari’a-compliant investments. Additionally, local press reports says that Malaysia’s sovereign wealth fund Khazanah Nasional has received regulatory approval to issue a MYR1billion (around $275m) socially responsible Islamic bond - The NASDAQ OMX Group, Inc has declared a regular quarterly dividend of $0.25 per share on the company's outstanding common stock, an increase of 67% from the prior $0.15 per share quarterly dividend. The dividend is payable on June 26TH 2015, to shareowners of record at the close of business on June 12TH 2015 - Lazard Ltd today reported operating revenue1 of $581m for the quarter ended March 31st. Adjusted net income was $103m, or $0.77 (diluted) per share for the quarter. These results exclude a pre-tax charge of $63m relating to a debt refinancing2. Q1 2015 net income on a U.S. GAAP basis, including the pre-tax charge, was $56m, or $0.42 (diluted) per share. "Our Financial Advisory and Asset Management businesses continue their strong performance," says Kenneth M. Jacobs, Chairman and Chief Executive Officer of Lazard. "In the first quarter, we refinanced and repaid a portion of Lazard's long-term debt, significantly reducing our interest costs," adds Matthieu Bucaille, chief financial officer of Lazard. "Consistent with our capital management objectives, we have increased the quarterly dividend by 17%, the fifth increase in as many years." -

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.

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP

Related News

Related Articles

Related Blogs