China Investment Corporation, the country’s $410bn sovereign wealth fund, is poised to buy a stake in the water network that serves London, the FT says, citing a person familiar with the situation and a senior government official. The deal, which would be the fund’s first acquisition in the UK, follows a visit to China this week by chancellor George Osborne, who has been urging Chinese investors to inject money into British infrastructure projects. Beijing has been seeking more lucrative returns than those available from low-yielding government bonds. The acquisition of up to 10 per cent of the holding company that owns Thames Water is close to being agreed, the sources said.
China Investment Corporation fund’s chairman and chief executive says the sovereign wealth fund plans to expand its foreign infrastructure investments, starting with Britain, in a comment piece for the FT. Lou Jiwei said the fund “is keen to team up with fund managers or participate through a public-private partnership in the UK infrastructure sector as an equity investor”. He also praises Britain as being “one of the most open economies in the world” with a “sound legal system” and said CIC has already built up “considerable positions in the UK market”. As the FT reports separately, the comments coincide with George Osborne’s autumn statement, due on Tuesday, in which the chancellor will talk up the prospects for investment in infrastructure projects for both foreign SWFs and UK pension funds. Mr Osborne will claim that Britain’s pension funds are ready to invest about £20bn under a new project to divert savings into infrastructure projects that can deliver stable returns over a long period, the newspaper says, and will also give approval to a further £5bn of projects to start in the next parliament. He also announced plans for a £20bn national loan guarantee scheme which he claims could cut borrowing costs for small companies by up to 20 per cent.
Oil-rich Nigeria currently has $1bn in its recently formed sovereign wealth fund. It is hoped that the fund, for which up to $2.5bn could be set aside each year, will allow the country to make more long term investments, better managing the wealth from its natural resources. While the country is the 10th largest oil producer in the world, poverty is still rampant and corruption remains a significant problem, reports the NY Times’ DealBook. Goldman Sachs, Morgan Stanley, and JP Morgan Chase have all been vying for business from the fund, offering advice and services. JP Morgan Chase is reported to be acting as an advisor on structuring the fund.
China’s main sovereign wealth fund will invest $1bn with its Russian counterpart, giving the Russian Direct Investment Fund its first capital commitment since it was established in June, reports the FT. The agreement was signed in Beijing on Tuesday at a meeting between Wen Jiabao, Chinese premier, and the Russian prime minister Vladimir Putin, who is in China for his first overseas visit since announcing his intention to reclaim the Russian presidency next year. China Investment Corp and RDIF will both contribute $1bn to a new Russia-China Investment Fund, which is also hoping to raise an additional $2bn from other Chinese investors.
The SEC is examining transactions between Libya’s sovereign wealth fund and US banks including Goldman Sachs, the WSJ reports. SEC lawyers are reviewing a $50m payment Goldman proposed, but did not make, to the Libyan Investment Authority as part of a plan to recoup losses for the fund, sources said. The payment could still be considered a bribe under the Foreign Corrupt Practices Act despite never being completed. The government has aggressively enforced FCPA cases in recent years, particularly in the complicated nexus of Wall Street institutions, sovereign wealth funds, and third parties retained to strike deals between the two.
Société Générale structured a $1bn bet on its own shares for Libya’s sovereign wealth fund after the Jérôme Kerviel fraud in March 2008, according to documents seen by the FT. The transaction had lost 72 per cent of its value by the middle of 2010. The deal was made barely a month after the bank lost €5bn from Kerviel’s rogue trades, with documents specifically citing the fraud’s effect on SocGen shares as a buying opportunity for the Libyan Investment Authority. It further contrasts the extent of losses incurred by the LIA with the lucrative fees paid out to the banks which dealt with it.
You’ve read the FT story – now see the document unearthed by Global Witness:
We’ll go through it later but needless to say, it confirms FT Alphaville’s worst fears about how badly the LIA mismanaged the Libyan people’s oil wealth… Read more
Libya’s sovereign wealth fund haemorrhaged billions of dollars as late as last year following disastrous investments in structured products, the FT reports. A report for managers of the Libyan Investment Authority dated June 30 said its bank and hedge fund investment products had fallen in value from about $5bn to roughly $3.5bn, out of the body’s total assets of $53.3bn. Three deals set up by SocGen had plunged from an initial value of $1.8bn to $1.05bn, the report said, with a $1bn Europe-focused product losing 43 per cent of its value in the preceding three months alone. The report also confirms large holdings of LIA cash in HSBC accounts, says the BBC’s Robert Peston. The revelations raise further questions about western involvement in the LIA, the assets of which have been frozen since the start of the Libyan civil war.
On Monday, Qatar gave diplomatic recognition to Libya’s rebels.
On Saturday — Qatar Petroleum had agreed to market Libyan oil controlled by the rebels to international buyers. Read more
From our field research, it would appear that the Gulf States assumed that breaking with the past by adopting the SWF institution was preferable to remaking their inherited institutions. By this logic, the SWF is symbolic of a commitment among the Gulf states to adopt the instruments of advanced financial management to facilitate the modernisation of what were otherwise semi-feudal states. The SWF is more than just a tool for managing resource wealth; it is a step towards modernity and economic development…
According to official literature and formal communications, the process of SWF adoption appears to be going extremely well. On the surface, these funds are operating like any other globally-oriented financial institution… Upon deeper examination, interviews with current and former financial market-oriented employees at Gulf States’ SWFs have identified a variety of problems with these official characterizations. Read more
By this point, the assets of the Libyan Investment Authority are frozen in just about every major financial jurisdiction. Except, of course, Libya.
So, a quick question. Is a sovereign wealth fund financing a war? Read more
Brazil is preparing rules that will block foreign governments, state-owned companies and speculators from buying agricultural land while allowing in “genuine” private sector investors, reports the FT. The country is eager to attract new capital to the sector to increase its share of world agricultural exports while continuing to screen out unwelcome “sovereign investors” according to Wagner Rossi, the agriculture minister. He declined to name any foreign countries that were of concern, but analysts said the main target was clear. “‘Sovereign funds’ means the Chinese,” said André Pessoa, director of Agroconsult, a consultancy.
Underlining the complexity of managing the Gaddafi financial asset freeze on Friday, HM Treasury has carved out an exception for any traders dealing with ‘non-Libyan financial institutions’:
(H/T Natsuko Waki of Reuters) Read more
On a less than glorious day for MENA sovereign wealth funds…
FT Alphaville’s Cairo agent sends this newspaper clipping our way: Read more
Or, just who is ‘sovereign’ in a sovereign wealth fund, anyway?
Western powers were starting to catch up with the Libyan people in hitting Colonel Gaddafi where it hurts on Friday. In this instance, by freezing financial assets, as part of a package of sanctions. Read more
The US government and AIG want to entice sovereign wealth funds to buy a large portion of the authorities’ sale of up to $20bn-worth of shares in the insurer, people close to the situation have told the FT. People familiar with the government share sale, which is expected to take place in May, said the government, AIG and their advisers had begun informal contacts with sovereign funds in Asia and Europe. Singapore’s Government Investment Company and China Investment Corporation are among the funds on the US authorities’ list, according to people close to the sale. Sovereign funds’ response to the US authorities’ entreaties will be a gauge of their renewed interest in the US financial sector, especially because after divestments AIG is largely a domestic company.
Marc Ostwald of Monument Securities has a good riff off of the news that Ireland’s national pension fund will indeed be repurposed to buy Irish government bonds:
While many will argue that this is just more ‘unsound finance’, but one should not forget that Japan’s Post Office and other Japanese public sector some 52% of the stock of outstanding JGBs. Unsound finance probably, but if it’s OK for Japan, why should it not be OK for Ireland?? Read more
More details of Japan’s most recent stimulus measures have come out in the last 24 hours, and one of them in particular has got goldbugs and inflationistas’ tongues a wagging.
And that would be the move to create a sovereign wealth fund more focused on resource-related investments than previously imagined. Read more
You know that whole ‘stocks are dead, long live bonds‘ meme?
Interesting factoid from a Morgan Stanley strategy note on Monday: Read more
This is – in a way - yet another of those posts commemorating the fall of Lehman Brothers, two years ago to the day.
Then again — the post-Lehman sovereign wealth fund really has become something to behold, given the past two years of change. Read more
Further adventures in sovereign wealth fund knife-catching — of a sort.
We’ve noted before that equity volatility has hampered sovereign wealth fund returns a tad lately. Tuesday’s WSJ offered a glimpse of a potential flip-side to this — SWFs buying protection on even worse reiterations of that volatility. Read more
If you’re a BP investor who thought twice about catching the falling knife of the firm’s post-Gulf spill shares this summer — well, spare a thought for Norway.
Thanks to the government’s sovereign wealth fund, it’s faced a similar dilemma. Read more
AIG has approached some of the world’s biggest investors with a view to them taking stakes in AIA, the US insurer’s Asian operation, with strong interest from China, according to people familiar with the matter, reports the FT. As a result, AIG is considering placing as much as 30 per cent with institutional investors and wealthy tycoons, rather than offering minor stakes in the initial public offering, they added. The likeliest cornerstone investors are sovereign wealth funds.
AIG has approached some of the world’s biggest investors with a view to them taking stakes in AIA, the insurer’s Asian operation, with strong interest from China, people familiar with the matter have told the FT. As a result, AIG is considering placing up to 30 per cent with institutional investors and wealthy tycoons, with the most probable cornerstones being provided by sovereign wealth funds. Meanwhile, AIG has sloughed off its money-losing American General Finance lending arm by selling 80 per cent to Fortress — removing a financial drag on the insurer’s recovery, reports the WSJ. The unit may be used by Fortress to buy up other struggling lenders, MarketWatch says.
Kirin is paying Y84.6bn for a 14.7 per cent stake in the largest beverage company in Malaysia and Singapore, underlining Japanese corporations’ ambitions to expand in neighbouring growth markets in Asia, the FT says. Kirin, which owns Lion Nathan National Foods in Australia, will become the single largest shareholder in Fraser and Neave when it acquires the stake from Temasek, the Singaporean SWF. The deal highlights Japanese companies’ drive to invest in growing markets in Asia to make up for sluggish demand at home.
As Europe prepares to publish the results of bank stress tests, it is not simply the behaviour of the bond market that is “intimidating” governments. Nor is it merely the antics of American hedge funds that are causing alarm. Instead, the players provoking particular behind-the-scenes unease are those sitting in Asia, according to the FT’s Gillian Tett. The potential market power – or ability to intimidate by implication – of sovereign wealth funds is rising steadily, as their coffers swell. And that, in turn, is starting to have some surprising impact on the eurozone debates.