Chillin' out till it needs to be funded
A primer on Sovereign Wealth Funds and their appetite for International Investment
You have already heard this a couple of times in the bull pen before the trading day begins or read it if you have just been following it with an ear to the ground..over the weekend many things were really solved and many more were expected to be solved by these last victims of the crisis runs and the ones that have been dull to the point of boredom in the European crisis. I know a lot of the young ones would still be eagerly awaiting a simpler knowledge of these state entities as colleges are notoriously fickle and not being Deano or sartorially inclined they may not get due attention.
However, here is my expert opinion, gleaned much from stable and high quality data summaries from swfinstitute.org. I mislaid much of my own earlier expert analysis having been unaware of much actitivities of Chinese SWFs as they have more than 5 active funds including the $5 bn Africa development fund, the $140bn State Security funds and the ever active equity investor China Investment Corporation. Another separate entity SAFE manages china’s Forex reserves to the tune of over $350bn
The Brave new World and the Frontier Factor
The two Singapore corporations recently turning back after being on the verge of going to professional managers are the biggest ones managing $400bn between them but Australia also has a sizable $50bn in its Sovereign surplus and both Singapore and Australia though Brazil makes do with $8 bn and the Fund Soberano de Brazil has recently appointed the state minister of Finance and central bank governor on the advisory council managing the fund, nting thus its advocacy as a state instrument and more its newness in the field.
The other new ones already active in the media megaphone include Malaysian Khazanah which has entered into an open war with private sector indian business to maintain turf in Singapore with an open offer for Healthcare major Parkway Holdings where it holds 25%.
Most sovereign funds have non oil, non commodity origins and restrict investments to Asia or Latam as the case may be and Luxury hotels and older conserves in Real estate in London and New York. The others have notably been heard on the wrong side in Park street CRE deals and Bank equity purchases.
However, Abu Dhabi, Qatar & other Emirates; Korea and CIC continue their investment charter of locating world class companies to invest in ahead of any new crises that might grip the world in /towards the next down cycle. The Saudi Arabian SAMA that manages $433bn of oil surplus has invested much in sovereign debt till now but may also spin off a separate one, for foreign securities adding a corpus either through new treasury issuance/oil bonds or moving out excess investments in bonds to equity.
A lot of the trading surplus only funds of course have correctly been analysed as inactive holding large amounts of cash like the Australian Future Fund but the current portfolio activity is spurred by the need to change the hedging already done with sovereign debt ( none of them being really exposed to Europe, even US banks holding only $175b of the $5 T hole in PIIGS nations) and / or learning from the CIC/Temasek example.
The funds in Aussie, Singapore were always expected to guide domestic private sector with portfolio investments and may also serve as examples in Korea and Brazil. Australia Future Fund for example holds $6 bn in Telstra and another $4.5 billion in Aussie companies (divestment?). Even Vietnam’s SCIC holds VND 5 Trillion in local currency and interests in 405 domestic companies helping restructuring mandates and facilitating exits. The US Alaska Permanent Fund was created from 25% royalties on local mineral and oil produce but invests downstream in interesting real estate and now Alaskan Power if all things go smoothly.
However vehicles like the Africa Development Fund also should be likely in the future for harnessing interest in Global Infrastructure and would greatly ease pressures on financing Infrastructure and emerging Market and N11 businesses. The Africa development Fund has enabled $3bn in Chinese private investment in Africa and China trade is more than $90 billion with Africa with the fund having invested $546mn of its own funds including power plants, glass factories and dedicated trade zones
The new reserve currencies, US Treasuries and SWFs
Apart from Government treasuries these funds would also be active in creating an alternative reserve pedestal for the Euro and the Renminbi now that China is selling USTs and despite the Euro in crisis. Meanwhile China markets are overheating and the Euro is unlikely to brake completely before hitting levels of 1.06 (and not 1.19 like some other commentators have been hoping in May) and Gold is also not likely to increase its share from any 10-20% weights it might have from 2009
As a whole these 50+ funds make available at least a $100bn for Private Equity projects, are notoriously slow and subject to hearsay advice in absence of material professional management and continue to represent hidden national interests. None of these have retail equity participation but do hold debt assets / liabilities from such citizenry.
Oil monies provide Abu Dhabi with over a $1Trillion in investments with $650 million in ADIA and $300m in ADIC based on division of budget surpluses while Oman and Dubai have smaller $8-$12 bn funds, Qatar manages $65bn