Thursday 29th January 2015
NEWS TICKER: THURSDAY, JANUARY 29TH 2015: Following a recent Morningstar Analyst Ratings meeting, Morningstar has moved the Morningstar Analyst Rating™ of the Aviva Investors Global Convertibles fund to Neutral. The fund was previously Under Review following the departure of co-managers David Clott and Shawn Mato. Prior to being place Under Review, the fund was rated Bronze. London-based co-manager, Justin Craib-Cox, who was running the fund alongside the duo has since been appointed lead manager. Craib-Cox was previously responsible for European convertibles and Morningstar is concerned by the considerable increase in his workload, which is only partly alleviated by increased support from Aviva’s equity and credit teams. The company is looking to recruit additional convertibles specialists, however, Morningstar’s limited visibility on the ultimate structure of the team, combined with Craib-Cox’s workload, lead Morningstar to a Neutral rating -Japan Airlines (JAL) has firmed up an order with Mitsubishi Aircraft for 32 MRJ regional jets, having signed a letter of intent in August 2014. The carrier will deploy the MRJs from 2021, to be operated by its wholly-owned regional subsidiary J-AIR, says JAL and Mitsubishi Aircraft in a joint statement - The Securities and Exchange Commission today announced that Robert E. Rice, Chief Counsel to Chair Mary Jo White, will leave the agency at the end of February. Chair White named Rice her chief counsel in June 2013. “Bob is one of the brightest and finest professionals I have ever known,” said SEC Chair Mary Jo White. “I relied on his impeccable judgment on a variety of important enforcement and regulatory issues, and I am very grateful to him for his service to the agency and to me.” Before coming to the SEC, Mr. Rice worked from 2004 to 2013 at Deutsche Bank AG in New York, where he oversaw all regulatory and criminal enforcement, litigation and governance matters in the Americas, and was the global co-head of the bank’s Governance, Litigation and Regulation Operating Committee. From 2000 to 2004, Mr. Rice was a partner at McDermott, Will & Emery in New York, where he concentrated his practice in white collar regulatory and criminal defense matters on behalf of corporate entities and corporate officers and directors. - The Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter yesterday encouraging supervised institutions to take a risk-based approach in assessing individual customer relationships, rather than declining to provide banking services to entire categories of customers without regard to the risks presented by an individual customer or the financial institution's ability to manage the risk. The FDIC also reinforced the agency's policies on managing customer relationships to examiners and other supervisory staff. Financial institutions that properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of customer accounts or individual customers operating in compliance with applicable laws. FDIC examiners must provide notice in writing for any case in which an institution is directed to exit a customer relationship - US mid-market investment bank BR & Co says it will release results for the fourth quarter and full year of 2014 before the market opens on Wednesday, February 11th -.Chile’s Minister of Economy, Development and Tourism, Luis Felipe Céspedes, along with General Manager Sercotec Bernardo Troncoso, made ​​a visit to the antique del Barrio Italy yesterday to introduce new programs for productive development that will display Sercotec for entrepreneurs , micro and small businesses during 2015 - Moody's de Mexico has upgraded debt ratings to Baa1 (Global Scale, local currency) from Baa2 and to Aaa.mx (Mexico National Scale) from Aa2.mx of the following five enhanced loans to the state of Chihuahua: MXN4.5bn from Banco Interacciones (original face value) with a maturity of 20 years; MXN1.38bn from BBVA-Bancomer (original face value) with a maturity of 20 years; MXN 2.03bn from BBVA-Bancomer (original face value) with a maturity of 20 years; MXN1.72bn from BBVA-Bancomer (original face value) with a maturity of 20 years; MXN3bn from Multiva (original face value) with a maturity of 17 years (MXN1.4bn disposed of). The ratings agency also assigned debt ratings of Baa1 (Global Scale, local currency) and Aaa.mx (Mexico National Scale) to the following enhanced loans: MXN1.995bn from Banorte (original face value) with a maturity of 20 years; MXN1bn from Santander (original face value) with a maturity of 20 years. All the enhanced loans are payable through a master trust (Evercore as trustee F/0152), to which the state has pledged the flows and rights to 56.98% of its federal participation revenues. All the loans under this master trust share the cash flow and are paid on a pari passu basis. - The January monthly energy review by the EIA was released yesterday evening. Preliminary estimates of US residential energy consumption suggest that for October 2014 total energy consumption equaled 1.3 quadrillion Btu, a 2% decrease from October 2013. Electricity retail sales and electrical system energy losses accounted for 73% of residential sector total energy consumption, while natural gas accounted for 16% of residential sector total energy consumption, renewable energy accounted for 6%, and petroleum accounted for 5% - Celent has released a new report, titled, IT Spending in Banking: A North American Perspective. The report is authored by Jacob Jegher, a research director with Celent's Banking practice. North American IT spending growth is rising steadily, he says, and is expected to be 4.5% higher in 2015. Growth will drop slightly in 2016 as IT spending by North American banks reaches US$64.8 billion, an increase of 4.2%. In the report, Celent examines, analyses, and contrasts the IT spending patterns of US and Canadian banks. The firm says North American bank IT spending will grow from $59.5bn in 2014 to $62.2bn in 2015. This year, the firm adds, is shaping up to be another promising one for retail banking; significant funds are still required to move forward and maintain self-service initiatives, digital banking projects/overhauls, branch transformation initiatives, and omni-channel endeavours. Additionally, mobile banking will continue to receive significant attention as banks aim to build on existing smartphone and tablet apps. Analytics, omni-channel banking, compliance/regulatory, and IT security investments will also be priorities. Spending on corporate banking will continue to climb through new component or module-based initiatives. Midsize banks are still very much looking to compete with larger banks that have invested significant amounts over the last several years. Small business is also a growing area of interest because banks still haven't figured out how to attack this distinct and attractive market segment. "The figures point to another strong year; 2015 is poised to build on the growth experienced last year," says Jegher. – The CME Group advises that the deadline to claim a SMART Click ID for GPS and BPS will be February 6th, 2015. After this date, there will no longer be an option to login with a Legacy ID and both applications will only be accessible with a SMART Click ID. Applicants can create a SMART Click ID (if you do not have one already) or claim your Legacy ID via the GPS and BPS portals and both applications must be claimed independently prior to the deadline. The CME says that after February 6th, the GPS and BPS applications will no longer be available via the CME Portal. These applications will only be available via ‘direct’ links following direct links: https://gps.cmegroup.com; https://bps.cmegroup.com; and https://login.cmegroup.com - China’s debt build up since the global financial crisis ranks as one of the largest in recent history (in the 97th percentile of debt-to-GDP changes in a sample of 55 countries over the past 50 years) according to Goldman Sachs’ latest Global Economics Weekly research report. The bank says the development is new and is a major global macro concern for investors. Deteriorating external conditions and declining investment efficiency have contributed to the debt build-up. The research team says that while the risk is significant, its analysis exploring the aftermath of large debt build-ups over the past half-century suggests that credit booms do not always end in deep recessions or banking crises. “GDP growth typically decelerates by at least 3-4pp after credit booms, although in China’s case some slowing has already occurred. Smoothing the adjustment process is likely to require increased central government fiscal outlays and policy interest rates should remain fairly low,” says the team. They add that while Chinese policy-makers have begun to address credit issues, significant imbalances still need to be worked off and capital market system development and reforms still need to be implemented more fully -

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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