Sovereign wealth funds
Some highlights from Monday’s FTfm. EU rules threat to pensionsThe Association of British Insurers has said it fears pension products could be caught up in the EU’s packaged retail investment products (Prips) directive which is designed to create a single, coherent disclosure regime for all retail investment products but which could mean that pensions savers must seek advice before starting to save in work-based pensions
A UK parliamentary committee has declared Rupert Murdoch “not fit” to lead an international media company, in a damning report that criticised News Corp’s handling of the phone-hacking scandal, reports the FT. The MPs also accused Mr Murdoch and his son James of mismanaging the crisis at the company The UK’s broadcasting regulator Ofcom, which is currently investigating whether BSkyB is a “fit and proper” holder of a broadcast licence, said it would study the MPs’ report. A significant number of UBS investors are planning to vote against the bank’s 2011 pay award on Thursday, reports the FT. Also in the FT, some 16% of shareholders in Xstrata lodged a protest vote over the re-election of Glencore CEO Ivan Glasenberg to the Xstrata board, signalling their support for the merger with Glencore should not be taken for granted.
Weekend headlines from the FT and other UK media:* From The FT,- The pound has become an unlikely haven in Europe. It is so popular among foreign exchange analysts that it is drawing comparisons with the Swiss franc.- Hedge fund managers make for unlikely supporters of François Hollande, the French socialist presidential candidate.- Maple offer for TMX on knife edge: Another potential big stock exchange deal could soon be history.- As Wall Street makes final preparations for the largest technology debut by value in history, it has also faced what some bankers and investors have come to see as a series of snubs from Facebook- Wealthy foreigners own a larger portion of the world’s most expensive homes than at the peak of the housing boom, as they increasingly look to park their wealth in perceived havens
We don’t know. That’s the first thing to make clear. In the hotel bars of Mayfair, not knowing what’s happening with PPR would appear to put us in the minority. Every quiet conversation of late has revolved around the Paris-based company, which owns Gucci Group along with a few retail and sportswear businesses that no-one seems to value much.
Microsoft’s quarterly results were better than expected due to firmer PC sales, reports Reuters. However its earnings were held back by poor Xbox sales, says the FT. Michael Woodford appeared at an Olympus EGM on Friday in Tokyo, demanding to know whether his dismissal as CEO last year was legitimate. Meanwhile “investors peppered the management with angry questions on why they let the scandal occur on their watch”, reports the WSJ.
Well, not if you are short the AUD because of all that hard landing business. Or, if you are an Australian exporter. The Australian dollar has long been seen as a China/commodities trade, but Macquarie’s Brian Redican reckons that’s no longer the case. The currency is increasingly influenced by external factors, rather than the country’s own ever-growing mining sector, or its monetary and fiscal policy.
China Investment Corp hopes to gain continued funding from the Chinese government, matching the financing of ‘mature’ sovereign wealth funds in the west, its executive vice president Wang Jianxi has told the WSJ. CIC has just received a $30bn capital injection to pursue further overseas investments. A regular stream of funds would make CIC more important still in diversifying China’s vast FX reserves. Zhou Xiaochuan, governor of the People’s Bank of China, has in the meantime indicated that the renminbi’s trading band might be widened in the near future, the FT says.
Foreign first-time-buyers are clambering to get into the London office market as sovereign wealth funds and cash-rich individuals seek stable assets amid the uncertainty in the global financial markets. The FT says research from Knight Frank, the property group, shows overseas investors making their maiden investment in the central London office market accounted for a third of the £9.1bn spent last year, while foreign buying accounted for 60 per cent of the overall investment. The surge in entrants to the London property market follows years of growing investment from the traditional economic powerhouses of the Middle East and Asia. Last year was the first in which property in the City of London became majority owned by foreign institutions.
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.
ALMATY/LONDON, Jan 4 (Reuters) – BTA, Kazakhstan’s third-largest bank by assets, failed to make around $160 million in coupon payments due by Jan. 3, three sources told Reuters on Wednesday… Yep, it’s Kazakh bank debt!
Eldorado Gold, the Canadian-listed gold miner, has agreed to buy European Goldfields for C$2.5bn (US$2.4bn) in stock, upending a plan by Qatar’s sovereign wealth fund to take a stake in the London-listed miner, reports the FT. European Goldfields, which is also quoted in Toronto, in October said that Qatar Holding, the Qatari sovereign wealth fund, would lend it $750m to fund the development of its flagship mines in Greece. The loan agreement was a coup for the Qataris, who are planning to build an investment vehicle focused on gold. The fund, which owns nearly 10 per cent of the company, could have ended up with about 30 per cent under the deal. But on Sunday, European Goldfields said its board had recommended a C$13.08-a-share offer from Eldorado, based on the buyer’s closing price on Friday, with European Goldfields shareholders receiving 0.85 Eldorado shares and a token amount of cash C$0.0001 per share.
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.
The executive vice president of China Investment Corp said the fund fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, reports Bloomberg. The sovereign wealth fund fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Jesse Wang said. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.” Meanwhile, the FT reports that a plan to boost the firepower of the eurozone’s €440bn rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior eurozone government officials. European leaders hailed a scheme to offer insurance on losses for investors buying troubled eurozone bonds as a means of leveraging the €250bn spare capacity of the rescue fund four or five fold, to more than €1,000bn.
The executive vice president of China Investment Corp said the fund fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, reports Bloomberg. The sovereign wealth fund fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Jesse Wang said. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.”
Terra Firma Capital Partners is looking to raise up to €1bn (£860m) from a sovereign wealth fund to retain its ability to do deals after the investment period of its buy-out fund runs out next year, the FT reports, citing people close to the matter who said the private equity group has been approached by several large investors from China and the Middle East that want it to set up a separate pool worth between €500m to €1bn. Guy Hands, Terra Firma’s founder and chairman, is believed to be considering this idea to bridge the gap between the current €5.4bn fund and the completion of its next fundraising, which the group is looking to start in early spring.
Guy Hands’ Terra Firma Capital Partners is looking to raise up to €1bn (£860m) from a sovereign wealth fund to retain its ability to do deals after the investment period of its buy-out fund runs out next year, the FT reports. The private equity group has been approached by several large investors from China and the Middle East that want it to set up a separate pool worth between €500m to €1bn, said people close to the matter. Mr Hands, Terra Firma’s founder and chairman, is believed to be considering this idea to bridge the gap between the current €5.4bn fund and the completion of its next fundraising, which the group is looking to start in early spring. The buy-out group, which has made headlines with its failed investment in EMI, the music business, has up to €700m for new investment in its third fund, excluding capital reserved for the existing portfolio. Several people said Mr Hands was confident about spending the money by the end of May, when the investment period will have run out, as he was working on deals, including potential investments in Spain and Italy.
George Osborne wants to tempt UK pension funds, oil-rich Gulf states and other sovereign wealth funds to pay for new roads, railways, housing and other projects with a national infrastructure plan to be released next week, the FT reports. The plan seeks to provide investors with confidence about the long-term value of investing in priority UK projects. Treasury officials are working on a model where a deal is structured so that pension funds would pay for chunks of the work that carry low levels of risk – and offer a reliable income stream – allowing them to show regulators that they are making the required rate of return on investment. Other riskier parts of the project might be assumed by the taxpayer or by banks and other private sector investors.
The revamped EFSF risks becoming the wiggle side chair of financial engineering, lauded for its creativity but rarely used for its intended purpose. On Monday, Nomura strategists released a useful note explaining the two new aspects of the EFSF — the special purpose investment vehicle (SPIV) and the credit insurance option — along with their pros and cons. The cons list is longer and, in aggregate, suggests that in spite of its aesthetic values, the revamped EFSF is riddled with too many contradictions to do much to help Italy and/or Spain.
China’s inflation rate fell in September, which is what pretty much everyone wanted. Only a small decline though — to 6.1 per cent from 6.2 per cent in August. The food price inflation rate remained the same at 13.4 per cent. So, the strategists say Friday’s figures won’t be enough to prompt any monetary easing. That brings us to Chinese banks’ bad debts…
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.
Comment, analysis, and other offerings from Tuesday’s FT, FT Tilt: Caution over China buying stakes in its banksChina’s sovereign wealth fund on Monday bought shares in the country’s Big Four banks in an attempt to bolster confidence in the banking sector, FT Tilt’s Denise Law writes. But the move is unlikely to help lift the valuations at Chinese banks in the short-term, as concerns about the sector remain, and equity markets have yet to hit rock bottom, analysts say.
The Chinese government will boost its stakes in the country’s largest banks, the FT reports, as it attempts to shore up slumping financial stocks and to restore investor confidence. Central Huijin, the domestic arm of China’s sovereign wealth fund, will purchase shares in Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China, the official Xinhua news agency announced on Monday. Xinhua added that the purchases by Huijin – its first such public intervention since a similar decision at the onset of the financial crisis three years ago – would “support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks”. The announcement led to a stronge surge in the bank’s shares in Hong Kong on Tuesday, with Agricultural Bank of China rising as much as 11 per cent, says the WSJ. Chinese bank shares have fallen 30 per cent during recent months.
Asian and Middle Eastern central banks and sovereign wealth funds are increasingly anxious about the safety of their investments in the debt of Fannie Mae and Freddie Mac, despite the assurances of US government officials, the FT says. Spooked by US political wrangling, major investors including the National Pension Service of Korea and the Kuwait Investment Authority have sold out of their holdings of the debt of the US Treasury-backed housing agencies since the 2008 global financial crisis. Officials from central banks, including the Bank of Japan, say they will be far more cautious in future. “The GSEs [government sponsored enterprises] are not safe,” said one senior official at an Asian central bank, who added that his institution was reluctant to sell its existing holdings because of fears of spooking the market. Investors are also worried that if the Federal Reserve keeps printing money, the value of the debt will fall in terms of their own currency, a calculation that dollar-based investors do not have to make.
Qatar Holding, an arm of the gulf state’s sovereign wealth fund, is planning to create a standalone investment vehicle to buy stakes in, or take over, gold companies, reports the FT. According to several people familiar with the fund’s plans, the owner of London retailer Harrods intends to invest about $10bn in metals and mining companies, of which more than $5bn will be in gold equities via a new vehicle referred to as “Qatar Gold”. “They want a meaningfully producing multi-asset gold conglomerate,” said one person with knowledge of the fund’s plans. “They don’t want bullion – they want producing mines.”