Archive for December, 2011

Happy Holidays!

The Daily Brief

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This is the last DB of the year. And there’s actually a few interesting stories:

  • Reuters has announced $50 billion in new funding for the China Investment Corp. In case you’re already on your way to the bank, here’s a CIC funding flashback and an explanation as to why I remain skeptical about rumors and unnamed sources when it comes to this SWF.
  • Apparently Britain will adopt an “SWF Model” for foreign aid in order to render it more effective. Fascinating.
  • Mumtalakat has finally released its 2010 results. The returns look really good…they’re just a bit stale.

Some Predictions for 2012

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Tomorrow’s my last blog day for the year. Naturally, then, I awoke thinking I’d write a sort of reflective post recapping the top sovereign fund stories of 2011. I thus dutifully sat down at my desk this morning to read through all the posts I wrote over the past 12 months. When I woke up — keyboard imprinted on my face — I decided to do something a bit more…eye opening, as it were.

So, let’s make some stuff up about 2012 instead! In other words, I thought I’d conjure up the big stories for next year. So, by the end of 2012…

1) Infrastructure: Every institutional investor in the world will be planning how they can allocate (or increase their allocation) to infrastructure.

2) Africa: Many institutional investors will be planning how they can allocate (or increase their allocation) to Africa.

3) New SWFs: Seven new countries will begin the process of launching a new SWF. (That’s right, seven, exactly.)

4) IFSWF: The International Forum of Sovereign Wealth Funds will transition from a silent, placeholder-of-an-organization into a vibrant entity that effectively champions the interests of its constituents.

5) Data: SWFs around the world will begin restructuring and revamping their data management systems in order to increase the visibility of senior staff over the funds’ portfolios and risks therein.

The Daily Brief

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This just in:

  • Kazakh President Nazarbayev has publicly fired the head of the country’s sovereign wealth fund Timur Kulibayev. This is absolutely remarkable: 1) He was only appointed in April; 2) He is a titan of Kazakh industry and a billionaire; and 3) he’s married to President Nazarbayev’s daughter; i.e., Nazarbayev just fired his son-in-law! It will be very interesting to get more details on this.

In other news:

Strategically Commercial Investing

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Singapore’s sovereign fund Temasek increased its holdings of the American fertilizer company Mosaic, bringing the total value of the sovereign fund’s position to roughly $1 billion and making it the single largest investor. Given the growing interest of sovereign investors in agricultural assets and food security, I wasn’t all that surprised to receive an email this morning asking whether I thought this specific investment was ‘strategic’ or ‘commercial’ in nature. My response: “Both.”

To understand why, I thought it useful to first give you some background on Temasek and then offer some reflections on “strategic” investing more generally. On Temasek, let me turn your attention to a paper by Wilson Ng:

“Temasek is a highly active form of sovereign wealth fund that makes equity investments in Singapore’s national interests. Temasek’s State sponsors understood that national interests would comprise both commercially-driven and non commercial criteria, and that those interests had to be pursued internationally…Temasek is a corporate investor with a genuine commercial interest in high-growth businesses both in developed and in emerging markets; but it is also an investor with a deep interest in acquiring large stakes in industries that will benefit Singapore’s competitiveness…Unlike other sovereign wealth funds that typically prioritize either commercial or political objectives, Temasek seems to have embraced both objectives in advancing Singapore’s national interests.”

Let’s also take a look at this (really good) paper by Henry Yeung of the National University of Singapore:

 “In the new millennium, Temasek Holdings has become more strategic in its investment focus. Its strategic plan is now committed to investment in new strategic or risky ventures (e.g. life sciences and water resources), in companies that would bring foreign skills and technology and access to foreign markets, and in nurturing global or regional leaders from its stable of companies or other non-Temasek Singapore firms…Meanwhile, its divestment policy continues unabated in areas outside its strategic plan because Temasek Holdings wants to concentrate its scarce management resources on those new growth areas.”

In short, Temasek makes investments to advance strategic national interests. At the same time, however, its over-arching objective remains commercial and financial success. In other words, the strategic objective of Temasek…is commercial in nature. Recall that Temasek is the holding company for Singapore’s government linked companies (GLCs), which means that the fund may be considering its portfolio companies in its investment decisions.

This reminds me of another type of investor that I’ve often thought of as ‘strategically commercial’: family offices. Indeed, many family offices operate according to a similar ‘double bottom’ line to the one espoused by Temasek; they want investments that will make money on an absolute basis, but they also want to support companies and industries that will help them with their core operating companies — i.e., the companies that made them rich enough to warrant setting up a family office in the first place.

In sum, ‘strategically commercial investors’ base their investment decisions on purely commercial objectives. However, these commercial objectives are broader than the typical financial investor. In a way, these strategically commercial investors are picking investments also based on added benefits to their other operating companies.

The Daily Brief

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Here are today’s top stories:

  • Angola seems to have ‘misplaced‘ $32 billion. For real.
  • It appears PNG took another step towards establishing its new SWF today, as Parliament mustered the 70 votes required for an absolute majority.  (The final tally was 73.)
  • Australia’s super funds shrunk, on average, 2% in 2011.
  • Central Bank’s reserve managers are reportedly moving into real assets. Doesn’t the definition of the former preclude the latter?
  • Temasek is now the biggest shareholder in Mosaic Co., which is North America’s second-largest fertilizer producer.

Public Fund Employees: Green, Grey or Grounded

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Sovereign and public pension funds often face a daunting human resources challenge: How do they fill public sector jobs with individuals who can compete in and with the private sector? I think it’s a fascinating question. And so I thought I’d flag up the types of employees that these investors (in my experience) are usually very capable at attracting:

  • Green: Public funds are generally quite competitive in attracting young (i.e., green) talent. At this early stage, the disparity between the public sector salaries and the private sector salaries are lowest. Moreover, the opportunities for career development at a public fund are (in many cases) far superior to those in the private sector. As a CIO recently told me, he often pitches to young recruits by saying, “If you give me three years of your time, I’ll give you 20 years of experience.”
  • Grey: Public funds also seem competitive in the war for older (i.e., grey) employees. Generally, these are individuals that have had successful careers on Wall Street.  They’ve made their money and are now interested in giving back or just escaping the rat race.
  • Grounded: Public funds are also, as you might expect, competitive at hiring people that are tied to the region (i.e., grounded) due to family, identity or affinity. Indeed, many employees at public funds are there because they want to stay close to relatives, give back to their country, or just be close to some great skiing or fishing (see Alaska).

In short, those are the individuals that I often see thriving at public funds. By implication, however, these sovereigns and pensions are quite poor at hiring the mid-career professionals who can earn high salaries in the private sector. So should they even try? Perhaps public funds should just accept this and focus their recruiting efforts on green and grey and work strategically to pick up the occasional grounded employee.


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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