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Sovereign Wealth Fund News Round-Up

January 3, 2017

Corporate Skyscrapers

2016 has been a challenging and eventful year for sovereign wealth funds. Investors worldwide are dealing with issues such as political instability, difficult investment markets, and climate change risks. However, despite the complex market outlook, sovereign wealth fund news reports indicate continuing adaptation to changes, as well as innovative and creative ways to find success.

For instance, collaboration and co-investing efforts are on the rise, and wealth funds around the world are revamping their strategies to make their portfolios more resilient to risks and sudden changes. Also, more and more investors are utilizing data and research to their advantage to make more informed and intelligent decisions.

The following are some sovereign wealth fund news highlights that exemplify the broad range of issues that large investors currently face:

Bangladesh Taking Steps to Form a Sovereign Wealth Fund

Bangladesh has recently taken steps to set up a sovereign wealth fund. It is expected to have an authorized capital of $5 billion to finance large projects. A proposal for creation of the fund will be sent to Bangladesh’s cabinet in January 2017; if approved, the process will likely be completed in three or four months. Paid-up capital for the fund will first be collected from Bangladesh’s foreign currency reserves held in the central bank.

There may be some initial limitations on the use of money from the fund. For instance, the money from the SWF would only be used to fund projects that are considered economically sound. Finally, Finance Minister Abul Maal Abdul Muhith states that a relevant law needs to be passed before the fund can be formed.

Increasing Level of Interest in Setting up a U.K. SWF

There is also increasing interest in setting up a sovereign wealth fund for the U.K. The House of Commons debated the idea Dec. 14, discussing issues such as the effects of an aging population on resource allocation. Other factors in this discussion include:

  • Pension funds being forced to invest in nominal/index-linked Gilts rather than equities
  • Whether a fund could act as a mechanism for creating more long-term stakes in U.K. companies
  • Various pension liabilities based on accounting and regulatory issues

Overall, one of the main problems to be addressed would be the taxing of future younger populations for pensions. An alternative option would be to invest proceeds from long-dated Gilts into emerging market equities, thus reaping dividends from younger populations outside of the U.K.

Abu-Dhabi SWF Global 1MDB Scandal

Swiss authorities are stepping up their investigation of Khadem al-Qubaisi, former head of Abu-Dhabi’s sovereign wealth fund, International Petroleum Investment Company (IPIC). Al-Qubaisi and his colleague Mohamed Badawy al-Husseiny (head of IPIC subsidiary Aabar) are accused of setting up a fake Aabar account in the British Virgin Islands. $1.37 billion was allegedly deposited into the account in 2012; the money was in fact supposed to be deposited in the real Aabar account as payment for guaranteeing two Malaysian bonds worth $3.5 billion.

In addition, hundreds of millions were allegedly directed into accounts held by al-Qubaisi and al-Husseiny. Al-Qubaisi is alleged to have received $472 million in related deals, purchasing a penthouse in Manhattan for $51 million. The penthouse and other assets are facing seizure by the U.S. Justice Department. In April of 2015, al-Qubaisi left his position at IPIC and is reportedly under investigation by Abu Dhabi authorities. The case emphasizes the need for more anti-corruption measures for institutional investors.

Sovereign Wealth Funds Emerge as the Largest Investors in Asian Private Equity

Sovereign wealth funds have now overtaken traditional sources as the biggest investors in the Asian private equity sector over the past decade. In the past, big backers of Asian private equity ranged from institutions and foundations to endowments and family offices. Now, however, sovereign wealth funds are writing bigger checks, and many such funds are also located in the Asia Pacific Region.

Higher economic growth rates in Asia versus the rest of the world tend to result in increased rates of wealth creation, making investment in the region very attractive. Many Asian sovereign funds are also aiming to realign their property portfolios for 2017. Lastly, Asian SWF investing will likely target the Indian financial industry heavily.

In other news in Asia, China continues to open more of its domestic market to foreign banks and investment firms. Banks and asset managers are aiming to set up shop as China extends wholly foreign-owned enterprise (WFOE) designation to overseas players. These changes are already drawing early applicants to register with the Asset Management Association of China (AMAC) as onshore private fund businesses. AMAC-registered businesses can now include fundraising and certain types of investing as part of their business activities (previously, they were limited to only consulting services).  

Keeping informed of developments in the financial realm is extremely important for the success and growth of any investment institution. Sovereign wealth funds will continue to face emerging issues in the upcoming year, and proper preparation is vital. If you have any questions or inquiries regarding sovereign wealth fund activity, contact us at Kessler Topaz. Our team works closely with sovereign wealth funds, and we understand the difficulties involved in monitoring a diverse institutional portfolio. We are committed to finding workable strategies and ensuring that our clients are best positioned to protect their rights.