Archive for October, 2011

Deep Thoughts By Roland Lescure

Ashby Monk

Roland Lescure has been Chief Investment Officer of the Caisse de Dépôt et Placement du Québec (which has $152 billion AUM) for the past 18 months. For those of you that don’t know the recent history of La Caisse, Lescure was brought in after the Quebec fund lost $40 billion in 2008 and fired 55 investment professionals. It was carnage. And Lescure’s appointment was a sign that the fund would (from now on) be taking risk management, governance and operations much more seriously. Given all of this, I was quite interested to come across a neat little interview with Mr. Lescure in aiCIO’s Fall Magazine. Specifically, it was quite interesting that he touched on many of the recurring themes from this blog. So, without further ado, here are some deep thoughts by Roland Lescure!

On the benefits of concentration: “Diversification is not what it used to be. It is no longer achieved by having as many investments as you can in many different asset classes and geographies. We are in a time when diversification is an illusion…concentration, it seems, is no longer the enemy…At $150 billion dollars, if we have one investment, we are very risky. If we have 3,000 investments, we are pretty risky too—because, as a result, we are not the master of the depths of every single investment…The ability to understand fully, from top to bottom, the investments you make is the key to success because it is going to help you manage your risk better. This strategy has consequences on the way we see our investments.”

On the benefits of in-house skill: “We strongly believe in in-house research, the ability to know the management of the companies we invest in, their business owners, their financial statements, and their operations inside and out…We have a big real estate group and one of our main advantages that has led us to a fantastic return in this asset class is that we manage operations.”

On the benefits of collaboration: “When we decided a few years ago to go and do things a bit away from our comfort zone, we established a local partnership in order to make sure we got the proper contacts, knowledge, and abilities to understand the investments we were going to make while also bringing our own operational capabilities expertise to the table…More than ever, the strength of your partnerships in private equity, especially in emerging markets, is critical.”

On the benefits of illiquid assets: “Today, we have a little more than $16 billion in private equity and another $5 billion in infrastructure. We are definitely willing to pursue it further; it has been providing us with great returns because we have been investing in the right projects and with the right partners.”

The Daily Brief

Ashby Monk

  • Canada’s pension funds continue to blaze trails. Next up: Venture Capital.
  • The PE secondary market is heating up as large institutions begin selling again.
  • The UK is considering a new “sovereign debt fund” to manage looming pension liabilities.
  • Some insights from WaPo on the GDF Suez-CIC tie up.
  • Mubadala is teaming up with the Chinese on a calcined petroleum coke production facility in Zhenjiang.
  • Scotland is courting QIA and ADIA for local infrastructure projects.
  • The State of Wisconsin Investment Board ups its allocation to hedge funds to $300 million.
  • India’s Industry Ministry continues to push for a new SWF.
  • And here’s the case against a new sovereign fund for India.

Weekend Reading: New Research

Ashby Monk

I’ve just released a new background paper for the Center for Global Development with Dr. Adam Dixon entitled “What Role for Sovereign Wealth Funds in Africa’s Development?” It was a fun paper to work on with a pretty lofty objective: Developing a policy framework for how developing economies can use SWFs to help overcome the resource curse. Here’s the abstract:

“The discovery of natural resources in a developing country is not generally the good news it appears to be. In fact, resource-rich developing countries face the significant challenge of using their natural wealth to improve the living standards of average citizens, rather than wasting it through weak institutions and corruption – a phenomenon often referred to as the “resource curse.” Civil wars and political turmoil tend to exacerbate the problem. One increasingly popular option for dealing with the resource curse is the commodity-based sovereign wealth fund (SWF). Angola, Ghana, Mozambique, South Africa, Uganda and Nigeria are set to join other African countries, such as Botswana and Mauritania, in turning to these special-purpose financial vehicles to help ensure proper management of resource revenues. By sequestering some of their resource revenues in a SWF, these countries hope to smooth resource price volatility, make long-term fiscal policy, manage currency appreciation, facilitate intergenerational savings, and, perhaps most importantly, minimize corruption and tame the political temptation to misuse the newfound wealth. However, as Nigeria’s experience with the Excess Crude Account illustrates, it is not enough just to set money aside. The success of SWFs is ultimately a function of good governance and clear mandates. This paper illustrates the key ingredients required for an SWF to succeed at facilitating development in the African context.”

We hope you find it useful — any and all feedback is welcome! I’ll leave you with our simplified policy framework for SWFs in the developing world: the SWF Cascade!

The Daily Brief

Ashby Monk

Fantastic news day — lots of interesting tidbits to report:

  • Future Fund sees long-term structural changes to the global economy.
  • Norway’s SWF lost $52 billion (with a B) in the third quarter. Ouch.
  • Russia sees Moscow becoming a new regional (if not global) financial center.
  • North Dakota is trying to figure out how to invest the assets in its Legacy Fund.
  • Norway’s NBIM sold all of its U.S. mortgage-backed securities.
  • Any European deal with China…is going to take…time.
  • The Economist says that CIC, GIC and Temasek have started to “funnel money into hedge funds“.
  • Korea’s NPS invests $225 million in French Malls.
  • SOFAZ updates its permissible investments list. Russia and Turkey are on it.
  • “IPIC is relying increasingly on financing from global investors and less on injections from the Abu Dhabi Government.”
  • Ontario Teachers’ gives $125 million mandate to Chicago’s NXT Capital for middle-market commercial finance investments.

What’s China Buying?

Ashby Monk

According to a report by Andrew Szamosszegi and Cole Kyle entitled “An Analysis of State‐owned Enterprises and State Capitalism in China,” China has been buying an awful lot of energy, power and mineral assets around the world over the past two years. Combining those three sectors accounts for 84% of all of the country’s foreign acquisitions; that’s what I’d call a concentrated portfolio…

The Daily Brief

Ashby Monk

Good morning, everybody. Here’s today’s news:

The Daily Brief

Ashby Monk

  • “The best way to help the welfare of PNG…is not to save money to bequeath to them but to improve institutions.” I agree.
  • Foreign capital is flooding into US property.
  • Was Gadhafi the richest man in the world?
  • True statement: “A successful SWF…is less about finance and more about the quality of governance.”
  • CPPIB’s David Denison is looking intense! (And he has some good advice too.)
  • Companies are courting SWF money…again.
  • Ireland’s National Asset Management Agency is offering financing to commercial property buyers.

About

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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