Archive for July, 2009

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Risky Business

Published July 20, 2009 Uncategorized Leave a Comment
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Ashby Monk

In the wake of substantial 2008 losses, Singapore’s Temasek is reported to be reviewing its risk management strategy.

According to Saeed Azhar of Reuters, Temasek will follow GIC’s lead by investing in assets that offer equity like upsides while protecting its downside, such as convertible notes. In addition, Temasek may shift its industry weightings from financials towards commodities, which perhaps reflects the priorities and expertise of the new CEO Chip Goodyear.

So, after a dismal 2008, Temasek joins many SWFs in reviewing its internal procedures. This is a good thing. Professionalizing the risk management function within these funds will ensure solid returns over the long-term. In my view, this type of transparent evaluation is yet another example of the maturity of this ‘new’ class of investors.

Weekend Reading

Published July 17, 2009 Uncategorized Leave a Comment
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Ashby Monk

CFO has a new White Paper out this week entitled “A Guide to Sovereign Investors for U.S. Issuers” (free registration required to download). The paper, which is sponsored by the Sovereign Investment Council, “provides a basis for U.S. issuers to better understand sovereign investor, their operations, the applicable laws, the costs and benefits of seeking sovereign investment, the hidden dangers and a few practical suggestions.” Check it out.

Enjoy your weekend.

Gao Xiqing Interview

Published July 16, 2009 Uncategorized Leave a Comment
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Ashby Monk

World Business has an interesting interview out with Gao Xiqing, the China Investment Corporation’s Vice Chairman, President & CIO. The interview touches on several issues.

First, they talk about investment strategy. Gao says that the CIC has a highly diversified investment strategy. In farming terms, he said, “We plant everything.” This corresponds with what Lou Jiwei said in February 2008 about the CIC’s strategy.

Second, Gao discusses the time horizon of the CIC in its investment decision-making. “As a sovereign wealth fund, we are much longer term investors…We look…in 50 year spans…so timing is not the most important thing.” This fits with the view that SWFs are the longest term investors in financial markets today.

Finally, Gao ends the interview with a discussion on the global financial crisis and the role of the dollar as a reserve currency. Gao’s view is that in the long run a “multi-polar currency system” is needed.

Healthy Competition

Published July 15, 2009 Uncategorized Leave a Comment
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Ashby Monk

I’ve just added a new resource to the website: “Healthy Competition“. This page simply lists all of the other websites that focus on SWFs (and related issues). If you can’t seem to get your fill of SWFs from here, you should check out the (healthy) competition. Some of these sites are doing fantastic work.

Also, if you think your site deserves to be included on this list, feel free to let me know.

Korean Collaboration

Published July 15, 2009 Uncategorized 2 Comments
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Ashby Monk

The last paragraph of this Trading Markets article had a reference to a new agreement between the Korea Investment Corporation and the Kuwait Investment Authority:

“Last week, KIC signed a preliminary deal with the Kuwait Investment Authority, Kuwait’s sovereign wealth fund, to seek increased mutual investment.”

This follows the agreements the KIC made with Australian and Malaysian funds in June, and is yet more evidence that SWFs will be working together at an increasing rate. SWF collaboration has become a common theme on this blog…perhaps to the annoyance of readers.

Nonetheless, I still think it important, as it’s a sign that SWFs are maturing as investors. Combined with the fact that SWFs demand more attention from asset managers for education / knowledge transfer and have actually been acquiring considerable human capital thanks to consolidation in the asset management industry (see report), I view SWFs as increasingly focused on improving their capacity to invest wisely. This is a good thing.

Asset Managers: More SWF Collaboration

Published July 14, 2009 Uncategorized 1 Comment
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Joint Funds

Ashby Monk

We’ve been talking a lot about the idea of ‘joint funds’ and SWFs working in concert over the past few months. In our recent survey of SWFs’ own asset managers, we asked a question about this new trend. According to the respondents, we can indeed expect this type of cooperation among SWFs. I think this a positive development.

I’ve argued before, SWFs can benefit from working together to facilitate local understanding. Academic research by Coval and Moskowitz (2001) has shown that investing locally (within 100 kilometers of the fund’s headquarters) can bump investment returns by over 1% due to information asymmetries. There are thus clear benefits to having local partners. Collaboration or clubbing that brings together two or three funds with diverse backgrounds into cooperation could maximize the effectiveness of the investment function in a specific economic geography.

Survey of SWFs’ Asset Managers

Published July 13, 2009 Uncategorized 1 Comment
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Ashby Monk

Gordon and I have posted an initial report on the data we recently collected from SWFs’ own asset managers. The report is also available directly on SSRN. See also Pensions & Investments’ article on the survey results.

I feel obliged to say that the report is in no way an ‘academic paper’. Rather, it is a collection of the results with some initial reactions and insights. Given the time sensitive nature of data, we thought it better to get a report out quickly so as to be of practical interest. The academic paper, which we hope will be of theoretical interest, will take months to write…

Weekend Reading

Published July 10, 2009 Uncategorized Leave a Comment
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Ashby Monk

Dr Sven Behrendt had a paper out in May’s Central Banking on the Santiago Principles. As Behrendt notes:

“Three aspects relating to the Santiago Principles warrant closer examination and will be discussed in this article: first, why did sovereign wealth funds find it necessary to develop and associate themselves with the Santiago Principles? Second, what is the status of the principles as a new approach to global financial governance? And third, how robust are the Santiago Principles and can they contribute to a stable global financial system and a free flow of capital and investments?”

Enjoy your weekend….

CIC’s New Advisors

Published July 9, 2009 Uncategorized 1 Comment
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Ashby Monk

The CIC just released the list of its new international advisory council. It’s quite an impressive group and, in my view, perfectly suited for the task of advising the CIC on global trends and internal processes. Whereas some are already criticizing the makeup of this Council for being light on “stock pickers,” I think the CIC got this right. Advisory boards such as this one are not set-up to give specific investment tips.

The Council will help the CIC with its long-term strategic direction and internal governance. Moreover, the CIC is adeptly using these highly respected individuals to facilitate acceptance from various jurisdictions around the world. This is referred to as legitimation through co-optation; by bringing legitimate individuals within your organization, you can ensure acceptance and legitimacy.

The only remaining question I have about this Council is one of influence. I expect these high-profile individuals agreed to align themselves with the CIC on the basis that they could effect change. So, how will these individuals know if they are being taken seriously by the CIC? In other words, what tests will they use to evaluate their ability to drive change within the organization? I’d be very interested to know.

In any case, this is a positive development. The CIC clearly sees good governance as a path towards global acceptance and legitimacy. I tend to agree.

Aboriginal Future Fund

Published July 8, 2009 Uncategorized 1 Comment
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Ashby Monk

South Australia’s Commissioner for Aboriginal Engagement, Klynton Wanganeen, has an innovative plan to help Aboriginal communities support themselves instead of relying on welfare: a new SWF. The new fund would be based on mining royalties and land tax revenue and run by the State Government.

“For the first time Aboriginal communities would have the ability to do some long-term planning, because they’re run by a year-by-year cycle, not knowing what funds they’re going to receive from governments,” according to Wanganeen.

I’m very interested in the way in which Wanganeen conceptualizes the utility of a SWF. First, he rightly views such a fund as imposing discipline on policymakers with respect to long-term planning. Second, he sees the SWF as having an important social welfare role for the Aboriginal community. However, this would be more about getting people off of welfare through job creation rather than facilitating the payment of welfare checks.

“It will give the opportunity for the capital base to be utilised for business development, joint ventures, and when you’ve got those things you create employment.”

SWFs as a tool for getting citizens off of welfare — an interesting idea!

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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