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PREQIN SPECIAL REPORT:SOVEREIGN WEALTH FUNDS
AUGUST 2017
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© Preqin Ltd. 2017 / www.preqin.com2
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
FOREWORD
All rights reserved. The entire contents of Preqin Special Report: Sovereign Wealth Funds, August 2017 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Sovereign Wealth Funds, August 2017 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Sovereign Wealth Funds, August 2017. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Sovereign Wealth Funds, August 2017 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Sovereign Wealth Funds, August 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.
p3 The Importance of Sovereign Wealth Funds
p4 Keynote Address - PwC
p5 Overview of Sovereign Wealth Funds
p6 Elephants and Unicorns: Sovereign Wealth Funds and Start-ups - IE Business School
p9 Emerging Sovereign Investment Funds - PwC
p11 Public Equities and Fixed Income Activity
p12 Private Equity and Private Debt Activity
p13 Real Estate Activity
p14 Infrastructure Activity
p15 Natural Resources Activity
p16 Hedge Fund Activity
p18 Sample Profile
Welcome to the Preqin Special Report: Sovereign Wealth Funds. This report contains key highlights from our main 344-page publication – the 2017 Preqin Sovereign Wealth Fund Review – released in April 2017.
Preqin’s first Sovereign Wealth Fund Review was launched in 2008 in response to the need for more information on these secretive entities and their investments in the private equity and real estate sectors. Following the success of this inaugural review of the industry, Preqin received hundreds of enquiries from professionals working in all areas of finance and research that were seeking a source of data and information on the more general strategies of sovereign wealth funds. In its ninth edition, we have expanded our publication to review the entire investment profiles of active sovereign wealth funds around the world including activities and allocations to public equities, fixed income, private equity, private debt, real estate, infrastructure, natural resources, hedge funds and other investments. Our dedicated research teams around the world reach out directly to sovereign wealth fund entities and examine public sources to ensure we capture the most accurate and up-to-date information for this latest edition.
The influence of sovereign wealth funds is undeniable; with assets topping $6.6tn, they have reached a size comparable to that of the entire alternative assets industry, which Preqin today estimates at approximately $7.7tn.
For more information, or to purchase a copy of the full-length 2017 Preqin Sovereign Wealth Fund Review, visit: www.preqin.com/swf for pricing options and packages.
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THE IMPORTANCE OF SOVEREIGN WEALTH FUNDS
SOVEREIGN WEALTH FUNDS HAVE A WORLDWIDE PRESENCE*
NORTH AMERICA
$226bn
EUROPE$1,087bn
ASIA$2,928bn
LAT AM & CARIBBEAN
$66bn
MIDDLEEAST
$2,071bn
AFRICA$87bn
AUSTRALASIA$123bn
SLOWDOWN IN SOVEREIGN WEALTH FUND GROWTH
$80bnAssets added by sovereign
wealth funds over the past 12 months.
76Number of sovereign wealth funds established worldwide.
18Number of sovereign wealth funds established since 2010.
51%of sovereign wealth funds
increased their assets over the past 12 months.
GROWING APPETITE FOR ALTERNATIVES
74%of sovereign wealth funds invest in at least
one alternative asset class.
91%of sovereign wealth funds that invest
in private equity have a preference for domestic opportunities.
Real estate and infrastructure are the most favoured alternative asset classes among
sovereign wealth funds.
+ 2010
*Figures denote total AUM by region.
© Preqin Ltd. 2017 / www.preqin.com4
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
KEYNOTE ADDRESS- Will Jackson-Moore, PwC
The influence that sovereign investors* have on global financial markets is
undeniable; they continue to capture the attention of financial markets as sovereign investors increase in number, size, variety and scope. According to PwC, sovereign investors held $11.3tn in 2015 and it is predicted this will grow to $15.3tn by 2020. The strong historical sovereign investor focus on direct real estate investing is now firmly established in the infrastructure market where the long-term nature of returns matches well with sovereign investor liabilities. However, this rush of capital has driven yields down. Additionally, we have seen a number of sovereign investment funds beginning to lead their own private equity deals rather than relying on external fund managers, in a hunt for yield and as an effort to cut costs and gain more control over the invested asset(s), is increasing. We also still see a gap in the infrastructure market for high-risk equity provisions in greenfield projects and sovereign investors that find an investment approach to tackling this area will find strong demand. Large funds are hiring specialists from across the globe to build out internal capabilities and vet deals either to provide an opportunity to invest alone or be in a stronger negotiating platform with private equity firms in a co-investing relationship. To put this into perspective, 42% of all LPs profiled on Preqin’s Private Equity Online are actively co-investing in private equity, and a further 12% of LPs worldwide are considering co-investing in the future.
The arrival of sovereign investment funds in the direct investment market has an attraction for some target companies, which are looking at a sovereign investor with different investment criteria along with an appetite for a longer-term investment unlike a typical private equity GP investor which typically looks to exit within three to five years. This is not to say that sovereign investment funds do not rely on private equity funds any longer – they do. However, the concern around fees still persists, and according to a Preqin survey polling institutional investors in December 2016, 39% of investors cited fees as a major challenge, which is up from 19% the prior year.
To shape this trend, the challenge is hiring the right talent and building the in-house investment teams that will deliver the value in investment strategy, governance, deal selection, execution, capital allocation and portfolio management. We witness a number of Middle Eastern funds hiring industry experts and investment professionals from across the private equity and asset management industry. Some have embarked on a journey of building in-house direct investment capabilities and have hired veteran successful CIOs of global investors to lead its investment teams. On the other hand, we have seen sovereign funds build out teams and establish offices around the globe to better engage the target market and source proprietary deals.
Another major trend we see is the rise of sovereign funds primarily focused on industrial or economic development, attracting foreign direct investment (FDI) and optimizing state-owned enterprises.
We see sovereign industrial conglomerates being formed as investment funds establish joint ventures with global manufacturing giants and successfully develop economic partnerships, benefitting from the knowledge transfer and industrial development in sectors such as aerospace, defence, energy and technology.
Another example are funds structured to hold a number of state-owned assets, and to utilize the payments from these assets to structure debt and invest in local infrastructure. Others are purely to attract FDI and most notably to optimize state-owned enterprises for possible privatization options or listing. International development banks and organizations should also look at the value of seeding the establishment of sovereign investment funds to emerging, frontier and developing nations as a form of aid. These funds are properly managed, and if properly governed, could deliver greater value and better return than traditional aid packages. The impact of these funds in the alternatives market is clearly fundamental, but the results of the switch to greater direct investment are yet to be known, and we will need to see how their collective investments perform over the next down-swing in the global economy before we see the real results.
*We use a broad definition of Sovereign Investment Funds or Sovereign Investors which include the major sovereign wealth funds and pension funds.
WILL JACKSON-MOOREGlobal Private Equity and Sovereign Investment Funds Leader, PwC
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OVERVIEW OF SOVEREIGN WEALTH FUNDS
The secretive nature and dynamic investment activity of sovereign
wealth funds have continued to make headline news since the publication of Preqin’s last Sovereign Wealth Fund Review in 2016. Since then, there has been a modest increase in the total assets under management (AUM) of sovereign wealth funds from $6.51tn to $6.59tn in March 2017 (Fig. 1), marking a rise of $80bn.
Fig. 2 shows that sovereign wealth funds invest across a wide range of asset classes. As these large investors mature and evolve, their pursuit to construct more diversified portfolios to achieve their investment objectives becomes increasingly important, and an increasing proportion invest in alternative assets: 74% of sovereign wealth funds worldwide now invest in at least one alternative asset class. The benefits of exposure to alternatives may include low correlation to traditional asset classes, such as equities and fixed income, and the potential for high risk-adjusted returns. Alternative assets are suitably aligned to sovereign wealth funds’ investment horizons as they are able to afford the illiquidity associated with these types of investments. Approximately one-quarter (26%) of sovereign wealth funds do not invest in any alternative assets.
Fig. 3 shows that hydrocarbon-funded sovereign wealth funds make up 53% of total industry capital, and include many of those sovereign wealth funds in the oil-dependent Middle East such as Kuwait Investment Authority and Abu Dhabi Investment Authority. Non-commodity-funded sovereign wealth funds account of 46% of industry capital and include China Investment Corporation, which manages the country’s foreign reserves and aims to reduce the amount of capital it holds in US currency.
New for 2017, the Review examines real estate deals invested in and exited by sovereign wealth funds, as well as more analysis across investment portfolios and in-depth commentary on this important sector. With more investors, more investments and more information than ever before, the 2017 Preqin Sovereign Wealth Fund Review is the most comprehensive review of the industry ever produced.
81% 86%
47%
24%
59% 60%
33%
80% 82%
55%
35%
62% 62%
47%
32%
79% 78%
61%
39%
63% 63%
55%
33%
0%
10%
20%
30%
40%
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Publ
ic E
quiti
es
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com
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Equi
ty
Priv
ate
Deb
t
Real
Est
ate
Infr
astr
uctu
re
Nat
ural
Reso
urce
s*
Hed
ge F
unds
2015
2016
2017
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
Sov
erei
gn W
ealth
Fu
nds
Fig. 2: Sovereign Wealth Funds Investing in Each Asset Class, 2015 - 2017
55%
37%
8%
53%
46%
1%0%
10%
20%
30%
40%
50%
60%
Hydrocarbon Non-Commodity Other Commodity
Proportion ofSWFs
Proportion ofAggregateSWF AUM
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
Sov
erei
gn W
ealth
Fun
ds
Source of Capital
Fig. 3: Sovereign Wealth Funds by Source of Capital
3.07 3.223.59
3.95
4.62
5.38
6.31 6.51 6.59
0
1
2
3
4
5
6
7
Dec
-08
Dec
-09
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-10
Dec
-11
Dec
-12
Dec
-13
Mar
-15
Mar
-16
Mar
-17
Other Commodity
Non-Commodity
Hydrocarbon
Total Assets underManagement
Source: 2017 Preqin Sovereign Wealth Fund Review
Aggr
egat
e SW
F A
sset
s un
der M
anag
emen
t
Fig. 1: Aggregate Sovereign Wealth Fund Assets under Management, 2008 - 2017
*Please note: Preqin has only been collecting natural resources data since 2016.
© Preqin Ltd. 2017 / www.preqin.com6
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
ELEPHANTS AND UNICORNS:SOVEREIGN WEALTH FUNDS AND START-UPS- Javier Capapé, IE Business School
At the end of 2016, sovereign wealth funds’ (SWFs’) assets under
management (AUM) totalled $7.2tn1. This institutional investor group is today 2.5x larger by AUM when compared to eight years ago, with the financial crisis at dawn. In December 2007, SWFs managed $2.8tn. By then, the academia, Wall Street and the general public started to “google” them and the search term ‘sovereign wealth funds’ peaked between January and October 2008 (Fig. 1).
They were the white knights of capitalism. By injecting more than $55bn in the Western banking system, SWFs from China, Singapore, Qatar and Abu Dhabi turned their fate of barbarians at the gates to liquidity buffers that saved the world economy. SWFs lived their golden days and started new investment strategies.
However, they have evolved very differently. One of the common errors of media outlets and magazines when dealing with SWFs is that they miss the fact that they are an extraordinarily heterogeneous group which comprises around 100 funds2.
Take size, for example. The top 10 SWFs concentrate 73% of the total assets in the industry and all of them manage assets above $200bn, with Norway still leading the pack with $930bn. Indeed, the majority (52%) of funds are worth less than $20bn, ranging from Latin America to the US, Africa or Southeast Asia.
The heterogeneity in size is also linked to important differences in sophistication. The larger the fund, the more diversified and complex is the asset matrix. The top 20 SWFs by AUM all invest in alternative assets, excluding quasi-SWFs linked to
central banks (Saudi Arabia and China’s SAFE) and the notorious exception of Norway. ADIA, from Abu Dhabi, began investing in private equities in 1989; GIC from Singapore was among the top 10 venture capitalists in 2014, and has recently established its own office in San Francisco.
Javier Santiso coined in our last report the term “sovereign venture funds”3: SWFs that invest in new technologies and innovation, start-ups and venture capital. Sovereign venture funds have a comprehensive strategy to join today the wagon of the future businesses. For them, to be patient and to invest capital wisely means to invest for the long run and capture the secular trends now, when they can extract value.
Sovereign venture funds were involved in more than 40 major investments in
start-ups in 2016, led by Singapore’s Temasek (with 17 investments), GIC (8) and Khazanah (7). In total, 12 different SWFs participated in start-up investment rounds in 2016, showing an extraordinary interest in this particular asset class.
The majority of investments were made in partnership with renowned venture capitalists. Still, it is interesting to note that half of the investment rounds were led by sovereign funds. That was the case for the massive investment rounds of China Investment Corporation in Ant Financial ($4.5bn), PIF’s Series G in Uber ($3.5bn) and GIC and Temasek in Cainiao Logistics ($1.5bn) jointly with Khazanah.
PIF made the headlines again when it announced its strategic partnership with SoftBank to establish the world’s largest technology fund (Vision Fund) to invest in an array of sub-sectors with a focus on
1This figure varies on what is strictly defined as an SWF.2This figure varies on what is strictly defined as an SWF.3http://media.ie.edu/reports/Report_Sovereign-Wealth-Funds-2016.pdf
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Source: Google Trends
Inte
rest
ove
r Tim
e*
Fig. 1: When We Were Famous: ‘Sovereign Wealth Funds’ Search Term Interest over Time*
*Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. Likewise a score of 0 means the term was less than 1% as popular as the peak.
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IE BUSINESS SCHOOLJavier Capapé is Director of the Sovereign Wealth Lab at IE Business School & Co-Editor of the 2016 Sovereign Wealth Fund Report4.
IE Business School is a graduate school located in Madrid, Spain. IE Business School’s International MBA program holds the No. 8 position worldwide, as well as being No. 4 in Europe and No. 1 in Spain, in the FT’s 2017 ranking of MBA programs.
www.ie.edu
artificial intelligence and the internet of things. Mubadala (another state-owned investor from Abu Dhabi) joined the limited partnership group of investors and committed $15bn to the fund’s first close of $93bn. Other investors including Apple, Foxconn, Qualcomm and Larry Elison’s family office are committing to the fund.
To get a better idea of how big this Vision Fund is, we looked at the largest venture capital fund raised in 2016. Baidu Capital Fund closed on $3bn in October. The Baidu effort pales in comparison to the Japanese behemoth, which is 30x larger. The vehicle designed by SoftBank’s CEO Masayoshi Son has started its investment spree in companies such as OneWeb, Didi Chuxing and Paytm, with check sizes above $1bn.
Given the interest in this particular group of privately held companies, some SWFs have opened offices in Palo Alto from which to invest in US start-ups. These include Malaysia’s Khazanah, Singapore’s GIC and Temasek, and Qatar Investment Authority, the last to join the group in 2017.
It is becoming increasingly common to see these funds investing in “unicorns”, defined as venture capital-backed companies valued at $1bn. Indeed, SWFs invest in six of the 10 most valued start-ups in 2017 – there are rumors that SoftBank will be investing in WeWork too, but these remain unconfirmed. Again, Temasek and GIC lead the pack of sovereign funds hunting unicorns, accompanied by QIA (which invested in Uber and Flipkart) and CIC (Didi Chuxing).
Temasek’s activity is particularly eye-catching. With a portfolio of $173bn, Temasek is not just one of the world’s largest SWFs, it is also one of the market makers for investment in start-ups and venture capital funds. Everything it does –
or stops doing – is watched with interest by other public investors, which tend to monitor the strategic movements of this historic and sophisticated Asian fund in great detail.
Temasek has had an inclination towards technology since its origins. At the end of 2016, its portfolio composition revealed that “telecommunications, media & technology” remain critical as it represented 25% of its portfolio, being the most important sector for the first time ahead of “financial services” and “transportation”. It holds key investments in Singtel, Markit, MediaCorp or Alibaba. Despite cutting positions in the last quarters in the Chinese e-commerce giant, it remains one of the top 10 shareholders, with a stake worth $4.2bn.
Temasek has participated in 88 rounds in 74 start-ups since 1999. Activity accelerated in the last four years. Since 2013 it has participated in 58 rounds valued at an aggregate $17bn (Fig. 2). Temasek covers various vertical businesses, such as e-education, e-commerce, media, online travel and health. It has invested globally in North
American and European start-ups, but also Chinese, Indian and even Latin American start-ups (in December 2016 it led the Series B round to inject $16mn in Argentinian start-up IguanaFix, specialized in online talent search). Temasek also led the $55mn investment in the Indian online automotive market CarTrade.com, in a Series F round completed in February 2017.
The strategic dimension of some investments is also noteworthy. For example, in the case of start-ups in the financial sector (fintech), Singapore is aspiring to become one of the main global financial hubs, which explains its investments in fintech start-up behemoths such as Markit and Funding Circle. In April 2015, Temasek acquired InnoVen Capital (formerly SVB India Finance), an Indian company that lends to venture capital-based start-ups, for $48mn. These investments then follow a double logic of positioning the country as a global financial arena, and at the same time resembling a strategy of a sophisticated long-term investor (hedging on the disruptors while simultaneously investing in the eventually disrupted old giants).
4Sovereign Wealth Fund Lab, IE Business School http://media.ie.edu/reports/Report_Sovereign-Wealth-Funds-2016.pdf
7.38
BIG RETURNS (SELECTED COMPANIES)(in millions of USD)
INVERSIONES EN STARTUPS(Millones de dólares)
* Other co-investors in the same �nancing round.
** Valuations based on individual investments,as well as later �nancing rounds.
x1.8
41 74
x1.36
500 680****10.0
6006004.5
x1
129 1,291
10.5
x10
CURRENT VALUESTAKE (%)INITIAL INVESTMENT
37 2,100
x56,8
1.03***
Source: Temasek Annual Reports (2016)
Infographic 4
Temasek:Sovereign VentureFund Market-Maker
5
1
7
14
23
2
1
2
7
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4
COMPANIES BY COUNTRY OF ORIGIN
ASIA
TOTAL
EUROPE
AMERICA
2015
2016
2013
TOTAL
2014
ASIA 4,905
500
600
250* (GERMANY)
250* (NETHERLANDS)
86* (UK)
150*(UK)
110* (UK)
40* (USA)
40* (USA)
3.300* (CHINA)
145* (INDIA)
41 (INDIA)
110* (CHINA)
129 (SOUTH COREA)
10 (MALAYSIA)
23* (INDIA)
100* (CHINA)
100* (CHINA)
100 (INDIA)
(Didi Dache)700* (CHINA)
100 (CHINA)
47 (INDIA)
TOTAL INVESTMENT 2013-20166,931 MILLION DOLLARS**
1,946
***November, 2014****Value before the merger with IHS in July 2016
Year2012
2013
2013
2013
2013
(UK)
(GERMANY)
Source: IE - Sovereign Wealth Lab based on Temasek reports
Fig. 2: Temasek: Sovereign Venture Fund Market-Maker
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2017 PREQIN SOVEREIGNWEALTH FUND REVIEWThe 2017 edition is our largest and most comprehensive review of sovereign wealth funds and their investment activity yet, featuring full profiles for 76 sovereign wealth funds worldwide.
Produced in association with PwC, this year’s edition contains more funds, more assets, more investments and more information than ever before. The Review features information on sovereign wealth fund investment in:
■ Equities ■ Fixed Income ■ Hedge Funds ■ Private Equity
■ Real Estate ■ Infrastructure ■ Private Debt ■ Natural Resources
The 2017 Preqin Sovereign Wealth Fund Review is the leading source of intelligence on this influential group of investors. For more information, please visit:
www.preqin.com/swf
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EMERGING SOVEREIGN INVESTMENT FUNDS
- Diego Lopez and Crispian Lord, PwC
In 1953, Kuwait Investment Board (forerunner of Kuwait Investment
Authority) was established to manage the proceeds from oil & gas and build savings to support the Emirate’s economy. Since then, approximately 100 sovereign investment funds (SIFs)1 have emerged as conduits for various objectives including capital maximization, stabilization and economic development2. As many as 25 funds were created from 2005 to 2008, a period of high oil prices and reluctance to foreign capital that preceded the GFC and the re-examination of the industry with the Santiago Principles for good governance and transparency.
Today, a number of governments are discussing the advantages, challenges and consequences of incorporating such mechanisms into their financial system and fiscal rule: type of vehicle to be set up (“what?”), macroeconomic rationale (“why?”), operating model (“how?”) and optimal size (“how large?”).
WHAT?A SIF is a pool of assets owned by governments to achieve national objectives, generally through the diversification of the source of income and the execution of investments overseas. Historically, there has been certain correlation between the accumulation of wealth (e.g. high oil prices, new discoveries) and the setup of a SIF, although it decreased in the aftermath of the GFC.
The investment mandate of a SIF must be clearly defined and differentiated from other state-owned entities. Most countries hold a unique fund that executes the international investments while others
have preferred to establish several vehicles with distinct purposes. One example is Abu Dhabi, which owns five SIFs, two of which have recently merged into a $125bn powerhouse3.
China is another example of a complex public sector driving the creation of various investment vehicles, which are sometimes perceived as competitors for the same assets4. The rule of thumb is that a sovereign wealth fund (SWF) is a financial, passive investor while a state-owned enterprise (SOE) is a strategic investor, but that distinction becomes blurry in China’s foreign policy and acquisitions overseas.
WHY?Governments’ main rationale in setting up a SIF is to battle the resource curse (or Dutch disease) and the mismanagement of budget surpluses, regardless of their economy’s size and status. There are ongoing conversations in tiny territories such as Macau and Bahamas, and in troubled nations such as Lebanon and Zimbabwe. In Africa alone, there are over 20 countries currently discussing the implementation of a fund, which would ironically place the greatest number of SIFs on the poorest continent in the world5.
Unfortunately, a SIF is not a ‘one-size-fits-all’ solution and must be set up in a context of strict independence and good governance. Iran’s OSF (replaced by NDFI in 2011), Nigeria’s ECA (replaced by NSIA in 2012) and Ireland’s NPRF (replaced by ISIF in 2014) are some examples of funds that were established for a goal but ended up being exhausted by the government for some other purpose.
The solution to budget surpluses is not systematically to set up a fund. In fact, the lack of governance, operating structures and control frameworks, and most notably of independence from political pressures and changes, can lead to a manifest failure of the objectives and a rapid depletion of capital. A successful fund must have a vision and a mission and adhere to its mandate with a clear autonomous structure.
HOW?Executing the mandate and demonstrating independence manifests itself in the design of the governance and operating structures to ultimately demonstrate that there is no actual or perceived misuse of public funds. The importance of this has been recently demonstrated in Turkey with the public backlash around the transfer of a number of nationally owned industries into a new fund6. An additional consideration is that a SIF may want to seek co-investments in some of its ventures and these co-investors will only be prepared to go ahead if they can gain comfort from the professionalism of the fund. As such, there is an increasing focus on moving to ‘best in class’ governance, operating structures and control frameworks:
■ Governance: the characteristics of good governance involve demonstrating that the fund’s investment processes are independent of government control and potential conflicts of interest. This can be achieved through structuring the right review committees (e.g. conflicts committee), terms of reference, independent committee members and a clear investment mandate.
1 We use a broad definition of sovereign investment funds, including the major sovereign wealth funds and pension funds 2 See PwC “The Taxonomy of Sovereign Investment Funds” http://www.pwc.com/gx/en/industries/sovereign-wealth-investment-funds/publications/the-taxonomy-of-sovereign-investment-funds.html3 On 21 January 2017, the ruler of Abu Dhabi issued a law creating the Mubadala Investment Company, which comprises both the International Petroleum Investment Company (IPIC) and Mubadala Development Company, and their respective assets http://www.mubadala.com/en/merger4 See FT “China’s investment arms extend reach” https://www.ft.com/content/f3f8d260-afc0-11e1-a025-00144feabdc05 See Dixon, A. and Monk, A. “What Role for Sovereign Wealth Funds in Africa’s Development?” http://www.cgdev.org/doc/Initiatives/Oil2Cash/Final_Formatted_Monk_and_Dixon_SWF_10.11.pdf6 See Reuters “Turkey transfers billions in major company stakes to sovereign wealth fund” http://www.reuters.com/article/us-turkey-economy-fund-idUSKBN15L1PG
© Preqin Ltd. 2017 / www.preqin.com10
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
DIEGO LOPEZVice President, SWF Coverage
CRISPIAN LORD Asset Management Consulting
■ Operating structures: establishing ‘best in class’ processes and systems with appropriately qualified individuals, documenting process flows and procedures, and running RFP processes for the right systems providers and asset servicing partners in a transparent manner are key.
■ Control frameworks: there is a baseline need to establish compliance with regulatory requirements and to implement normal financial and operational controls, but there is an increasing focus on operational risk (particularly cyber risk) and the risk management processes around derivatives given historical failures in less sophisticated institutions.
Executing on the above can be challenging given the size of most SIFs and their diversification across project finance, traditional and alternative assets, and different geographies. Furthermore, the operating setup itself may bring additional complexity with the potential for fund structures and supporting operations in various locations depending on asset classes and the wrappers used for sub-funds.
HOW LARGE?‘Too big to fail’ does not necessarily hold when it comes to SIFs. An excessively large vehicle may lead to compliance breaches and to a lack of flexibility in mandate and execution. Since the Norwegian
Parliament decided to increase the allocation to real estate in an additional 2% of its gargantuan fund Norges Bank Investment Management (NBIM), its managers have been struggling to find enough high-calibre assets that meet the strict investment criteria and oversight framework in which the fund operates.
The magnitude of a SIF should be well balanced with the country’s environment and broader goals. More importantly, it should take into account the fiscal and spending rules, the absorption capacity of the domestic economy and the need of readily available capital to act as a buffer for potential deficits.
RECENT DEVELOPMENTSThe drop in oil prices has been a game changer for traditional exporting nations, which need to reassess their saving and investing strategies. This has led to a number of new trends in the last few years:
■ SOEs restructuring: Saudi Arabia has recently set up a new vehicle (SAIIC) for the diversification of the economy and plans to use the proceeds of the world’s biggest ever IPO (Aramco) to help fund the world’s biggest ever SIF, Saudi Arabia’s Public Investment Fund (PIF)7. Turkey is using its SOEs as collateral while Indonesia is modelling a holding for 199 of its largest SOEs which will control $320bn worth of assets by 20198.
■ Co-investment SIFs: In 2011, Russia
Direct Investment Fund (RDIF) was the first co-investment, government-related fund to attract foreign capital into the country. It has successfully signed 20 partnerships to date, and has been subsequently copied by France, Italy and Nigeria.
■ Sovereign venture funds: Others have been focusing on tapping into the tech boom and have set up smaller venture capital funds within their larger SIF structures. Examples include Singapore’s Vertex Ventures, Kuwait’s NTEC, Oman’s OTF and Gabon’s Okoume Capital.
Most governments like to follow role models when designing and implementing their SIFs; however, it is the environment in which these funds operate that will determine the long-term survival and goal achievements of the fund. Not every country can or should implement a PIF, an RDIF or a Vertex.
Meanwhile, conversations about emerging SIFs continue in all corners of the world: Turks & Caicos, Louisiana, Tanzania, Turkey, Georgia, India and Taiwan have little in common but they have all shared SIF-related headlines in 2016. While debates are constructive, it is yet unclear how many funds will materialize, and most importantly, how successful they will be in fulfilling their mandate. Stay tuned.
7 See Bloomberg “Saudi Arabia Plans $2 Trillion Megafund for Post-Oil Era: Deputy Crown Prince” https://www.bloomberg.com/news/articles/2016-04-01/saudi-arabia-plans-2-trillion-megafund-to-dwarf-all-its-rivals8 See Braunstein, J. and Caoili, A. “Indonesia: the vanguard of a new wave of sovereign wealth funds?” http://blogs.lse.ac.uk/government/2016/08/30/indonesia-the-vanguard-of-a-new-wave-of-sovereign-wealth-funds/
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PUBLIC EQUITIES AND FIXED INCOME ACTIVITY
Traditional asset classes such as public equities and fixed income both
form an important component of many sovereign wealth funds’ investment strategies: 79% and 78% of sovereign wealth funds invest in these asset classes respectively.
PUBLIC EQUITIESSovereign wealth funds look to allocate to public equities for a number of reasons. Palestine Investment Fund, for example, invests in the asset class to complement its long-term allocation to illiquid assets, such as real estate. The largest proportion (83%) of sovereign wealth fund investors in public equities invest in large cap public companies, while 60% invest in small cap public companies.
Fig. 4 reveals that 73% of sovereign wealth funds invest in global equities to diversify their portfolios, while the largest proportion (77%) focus on investments in Europe. For example, Kuwait Investment Authority sees promising opportunities in the region and, since 2015, has been reducing its overweight exposure to US equities in favour of European equities.
FIXED INCOME Among sovereign wealth funds investing in fixed income, the majority (84%) invest in government bonds, as shown
in Fig. 5. A smaller proportion (36%) of these investors target high-yield bonds, although this is usually coupled with a preference for investment-grade bonds, an approach taken by North Dakota Legacy Fund.
North America and Europe are the most favoured destinations for fixed income investment among sovereign wealth funds (72% and 66% respectively), with a smaller proportion (62%) preferring a global approach.
OUTLOOKPublic equities are likely to remain a key part of sovereign wealth funds’ portfolios going forward, as many will look to rebalance their portfolios and diversify against macroeconomic shocks in their domestic economy. Given that 32% of sovereign wealth funds are under-allocated to fixed income, there remains the potential for new inflow of capital into the asset class over the coming years.
84%
76% 78%
36%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Government Corporate InvestmentGrade
High Yield
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
inFi
xed
Inco
me
Bond Type/Grade
Fig. 5: Sovereign Wealth Funds Investing in Fixed Income by Bond Type and Grade
73% 73%77%
70%
50% 50%
60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Global NorthAmerica
Europe Asia MENA EmergingMarkets
Other
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
inPu
blic
Equ
ities
Regional Preference
Fig. 4: Regional Preferences of Sovereign Wealth Funds Investing in Public Equities
79%of sovereign wealth funds invest in
public equities.
32%of sovereign wealth funds are under-
allocated to fixed income.
INVESTOR PROFILEInvestor: Cdp EquityLocation: Italy, EuropeStrategy: Cdp Equity invests predominately in large and mid cap equities and acquires
mainly minority interests in companies with strong profitability and growth prospects.
© Preqin Ltd. 2017 / www.preqin.com12
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
PRIVATE EQUITY AND PRIVATE DEBT ACTIVITYSovereign wealth funds’ appetite
for private equity and private debt investments are both on the rise, with the proportion of investors that allocate to these asset classes increasing by six and five percentage points respectively from April 2016. Many sovereign wealth funds that invest in private debt do so through their private equity allocation, such as State General Reserve Fund of the Sultanate of Oman, which invests in private equity and debt through both direct and unlisted investments.
PRIVATE EQUITYSixty-one percent of sovereign wealth funds have an allocation to private equity. As shown in Fig. 6, buyout and venture capital remain the preferred strategies among sovereign wealth funds, as invested in by 67% and 63% of funds respectively. The latter forms a significant component of Bpifrance’s investment strategy, with known commitments to funds such as Fonds Européen des Matériaux and CapAgro Innovation. Some sovereign wealth funds look to alternative routes to the traditional commingled fund model to access the private equity market, with 63% co-
investing alongside GPs. Thirty percent utilize separate accounts, including Alaska Permanent Fund Corporation.
PRIVATE DEBTThirty-nine percent of all sovereign wealth funds invest in private debt, the majority (70%) of which have exposure to mezzanine funds (Fig. 7), with many also favouring distressed debt and direct lending strategies (63% and 53% respectively). China Investment Corporation, for example, targets these strategies across both domestic and overseas markets.
OUTLOOKPrivate equity investments offer diversification within investment portfolios, potentially generating substantial returns over the long term without the short-term volatility seen in public markets. Private debt meanwhile, amid a low interest rate environment, has become a distinct, standalone asset class rapidly evolving into a mainstream investment option for institutional investors.
53%
63%70%
47%
17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
DirectLending
DistressedDebt
Mezzanine SpecialSituations
Venture Debt
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in P
rivat
e D
ebt
Strategy Preference
Fig. 7: Strategy Preferences of Sovereign Wealth Funds Investing in Private Debt
67%63% 61%
24%
37%33%
57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Buyo
ut
Vent
ure
Capi
tal
Gro
wth
Turn
arou
nd
Seco
ndar
ies
Fund
of
Fund
s
Oth
erPr
ivat
e Eq
uity
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in
Priv
ate
Equi
ty
Strategy Preference
Fig. 6: Strategy Preferences of Sovereign Wealth Funds Investing in Private Equity
SOVEREIGN WEALTH FUNDS INVESTING IN PRIVATE EQUITY vs. PRIVATE DEBT
61%
39%
PrivateEquity
PrivateDebt
INVESTOR PROFILEInvestor: China Investment Company
(CIC)Location: China, AsiaStrategy: CIC made its first
commitment to private equity in 2008. It has a long-term investment horizon and pursues stable returns from its private equity investments. At the beginning of 2017, CIC’s chairman announced that the fund would increase its private equity investments in the US. CIC invests in the private debt asset class via its private equity allocation.
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REAL ESTATE ACTIVITY
Real estate is a key asset class that continues to attract vast investment
from sovereign wealth funds, largely due to the nature of real estate investments as long-term commitments, which align with these investors’ long-term investment horizons.
A significant proportion (63%) of sovereign wealth funds include real estate in their investment portfolios, including Government Pension Fund Global, which allocates 3.1% of its $899bn in total assets to real estate. Furthermore, 69% of these investors have a target allocation to the asset class of 10% or more of their total assets (Fig. 8).
With greater resources and expertise at their disposal, larger sovereign wealth funds have shown a greater preference for investing in real estate: all funds managing $100bn or more in assets actively invest in the asset class (Fig. 9).
Twenty-seven percent of sovereign wealth funds are based in the Middle East and Asia, with the majority seeking exposure through direct investments. Private real estate funds are also favoured by these investors, with Kazakhstani sovereign wealth fund National Investment Corporation announcing its plans in July 2016 to deploy $80-160mn via primary and secondary funds of funds.
Alternative structures are also utilized by many sovereign wealth funds, with almost half (48%) partaking in joint ventures. 2017 has marked an active year in this part of the market for GIC, which entered a notable joint venture with Paramount Group in January. A slightly smaller proportion of sovereign wealth funds invest in real estate through co-investments and separate accounts (42% and 38% respectively).
Sovereign wealth funds face the challenge of accessing available prime assets due to increased demand; however, with many under-allocated to the asset class, the prospects of portfolio diversification and generating a steady income stream will likely mean real estate remains a key component of sovereign wealth funds’ portfolios in the future.
36%
50%
71% 67%
100% 100%
0%10%20%30%40%50%60%70%80%90%
100%
Less
than
$1bn
$1-9
bn
$10-
49bn
$50-
99bn
$100
-249
bn
$250
bnor
Mor
e
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
inRe
al E
stat
e
Total Assets under Management
Fig. 9: Sovereign Wealth Funds Investing in Real Estate by Total Assets under Management
33% 33%
22%
11%
31%
54%
15%
0%
10%
20%
30%
40%
50%
60%
Less than 4.9% 5-9.9% 10-14.9% 15% or More
CurrentAllocation
TargetAllocation
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in R
eal E
stat
e
Proportion of Total Assets under Management
Fig. 8: Sovereign Wealth Funds’ Current and Target Allocations to Real Estate by Proportion of Total Assets under Management
63%of sovereign wealth funds invest in
real estate.
48%of sovereign wealth funds that invest in
real estate utilize joint ventures.
INVESTOR PROFILEInvestor: Qatar Investment Authority (QIA)Location: Qatar, Middle EastStrategy: QIA invests in real estate through direct investments and unlisted vehicles. The
sovereign wealth fund aims to develop the country’s tourism industry while also providing structure and quality control for Qatar’s real estate developments. QIA, through Qatari Diar, invests in the wider MENA region, as well as in the UK, Europe and US.
© Preqin Ltd. 2017 / www.preqin.com14
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
INFRASTRUCTURE ACTIVITY
Infrastructure investment offers sovereign wealth funds access to an
asset class that can provide potential stable, long-term yields, with many looking to utilize their assets to drive their domestic economies and fulfil their development objectives.
The majority (63%) of sovereign wealth funds invest in infrastructure, which, in part, can be explained by their ability to withstand high illiquidity due to their limited liabilities. Fig. 10 shows those managing assets of at least $50bn have a greater appetite for investment in the asset class.
A significant proportion (90%) of sovereign wealth funds invest directly in the asset class, illustrating the influence of these institutions in the infrastructure industry worldwide. Almost two-thirds (63%) of these investors access infrastructure through unlisted funds, which may provide them with valuable opportunities and expertise in local markets.
Investment is evenly distributed in terms of project stage, with a large proportion (79%) investing in greenfield assets, illustrative of sovereign wealth funds’ appetite for higher risk/return opportunities. A greater proportion
(88%) of sovereign wealth funds active in infrastructure invest in economic infrastructure, with a smaller but still significant proportion (79%) investing in social infrastructure.
Half of sovereign wealth funds investing in infrastructure maintain a global scope for their investments (Fig. 11). The largest proportion (50%) of these investors target emerging markets. GIC is one such investor with an interest in infrastructure assets in emerging markets; in 2014, it acquired a stake in Neptune Stroika Holdings, a Philippines-based hospital group.
High valuations and restricted deal flow mean that the infrastructure asset class is presenting challenges for investors. However, there are also opportunities and infrastructure can help sovereign wealth funds achieve economic and social objectives and potentially deliver stable risk-adjusted reports over a long period.
50%
40%46% 48% 46%
35%
50%
44%
0%
10%
20%
30%
40%
50%
60%
Glo
bal
Nor
thAm
eric
a
Euro
pe
Asia
MEN
A
OEC
D
Emer
ging
Mar
kets
Oth
er
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in
Infr
astr
uctu
re
Regional Preference
Fig. 11: Sovereign Wealth Funds Investing in Infrastructure by Regional Preference
33%
59% 56%
89%100%
78%
0%10%20%30%40%50%60%70%80%90%
100%
Less
than
$1bn
$1-9
bn
$10-
49bn
$50-
99bn
$100
-249
bn
$250
bnor
Mor
e
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in
Infr
astr
uctu
re
Total Assets under Management
Fig. 10: Sovereign Wealth Funds Investing in Infrastructure by Total Assets under Management
63%of sovereign wealth funds invest in
infrastructure.
SOVEREIGN WEALTH FUNDS INVESTING IN INFRASTRUCTURE BY ROUTE TO
MARKET
90%
63%
Direct Unlisted
INVESTOR PROFILEInvestor: GICLocation: Singapore, AsiaStrategy: GIC invests in private infrastructure funds, listed vehicles and direct assets through
its infrastructure arm, INFRA. The sovereign wealth fund invests globally, and has a growing interest in infrastructure assets in emerging markets.
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NATURAL RESOURCES ACTIVITY
While many sovereign wealth funds derive their initial revenues from
the extraction of hydrocarbons and other commodities, natural resources investment plays an important role in these investors’ portfolios – 55% currently invest in the asset class.
A quarter of sovereign wealth funds with less than $1bn in AUM allocate capital to natural resources, compared with 89% of funds with $50-99bn in AUM; 100% of funds with $100-249bn in capital under management have exposure to investments in natural resources.
As seen in Fig. 12, the largest proportion (37%) of sovereign wealth funds investing in natural resources are based in the Middle East. Older funds, such as Arab Petroleum Investments Corporation, have an explicit mandate to develop local resources in their region.
Owing to the local knowledge and expertise of many hydrocarbon-funded sovereign wealth funds, 88% of sovereign wealth funds active in the asset class have direct exposure to natural resources investments, while 49% invest through unlisted funds.
All sovereign wealth funds that invest in natural resources have a preference for energy investment (Fig. 13). With volatile commodity prices in recent years, many of these investors have been strategically looking to encourage the development of other available resources. In January 2016, Oman Investment Fund and State General Reserve Fund of the Sultanate of Oman announced plans to enter a partnership, culminating in the launch of a $260mn venture which will seek to develop the mining sector in the sultanate and diversify the country’s economy.
While this unique group of investors currently relies heavily on commodities, it is likely that we will see further investment in other natural resources assets over time as funds seek to diversify their portfolios.
54%
100%
44%39%
56%
0%10%20%30%40%50%60%70%80%90%
100%
Agric
ultu
re/
Farm
land
Ener
gy
Met
als
& M
inin
g
Tim
berla
nd
Wat
er
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in
Nat
ural
Res
ourc
es
Strategy Preference
Fig. 13: Strategy Preferences of Sovereign Wealth Funds Investing in Natural Resources
12%
7%
37%15%
24%
5%
North America
Europe
Middle East
Africa
Asia
Australasia
Source: 2017 Preqin Sovereign Wealth Fund Review
Fig. 12: Sovereign Wealth Funds Investing in Natural Resources by Location
55%of sovereign wealth funds invest in
natural resources.
SOVEREIGN WEALTH FUNDS INVESTING IN NATURAL RESOURCES BY ROUTE TO
MARKET
88%
49%
Direct Unlisted
INVESTOR PROFILEInvestor: Arab Petroleum Investments Corporation (APICORP)Location: Saudi Arabia, Middle EastStrategy: APICORP is an active investor in natural resources. The sovereign wealth fund
targets direct equity and debt investments that aid the development of energy-related industries, including oil, natural gas and power. The sovereign wealth fund typically focuses on investment opportunities across the Middle East and OECD regions.
© Preqin Ltd. 2017 / www.preqin.com16
PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
HEDGE FUND ACTIVITY
Although only a third of sovereign wealth funds invest in hedge funds,
these investors account for a significant 12% of all institutional capital invested in the asset class worldwide. Sovereign wealth funds based in Asia have the largest appetite for hedge funds – 32% of sovereign wealth funds in the region have exposure to hedge funds – followed by those located in North America and the Middle East (each 24%).
Fig. 14 shows that the majority (84%) of sovereign wealth funds that invest in hedge funds have a preference for equity strategies. Multi-strategy hedge funds are also targeted by a significant proportion (80%), as these investors seek further diversification and lower volatility in their hedge fund investments.
The largest proportion (63%) of sovereign wealth funds favour both direct hedge fund investments and investing through funds of hedge funds (Fig. 15), which may allow investors to grow their expertise to solely invest directly in the asset class, an approach taken by only a third of investors.
Over half (56%) of sovereign wealth funds investing in hedge funds utilize managed accounts, illustrative of the value for these
investors of exhibiting greater control and transparency over their investments.
Almost all (92%) sovereign wealth funds that invest in hedge funds do so globally, with a smaller yet significant proportion (67%) investing in North America-focused hedge funds. This is the case for Alberta Heritage Savings Trust Fund, which focuses primarily on North American hedge fund opportunities due to ease of access and links to the region.
The proportion of sovereign wealth funds that invest in hedge funds has remained relatively steady in recent years. Given that many of these investors are under-allocated to the asset class and are continuing to build up their expertise in the market, sovereign wealth funds are likely to be a major source of capital for hedge funds going forward.
33%
4%
63%
Direct Only
Fund of Funds Only
Both Direct andFund of Funds
Source: 2017 Preqin Sovereign Wealth Fund Review
Fig. 15: Structural Preferences of Sovereign Wealth Funds Investing in Hedge Funds
84%76% 76%
64% 64%
80%
56%
44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Equi
tySt
rate
gies
Mac
roSt
rate
gies
Even
t Driv
enSt
rate
gies
Cred
itSt
rate
gies
Rela
tive
Valu
eSt
rate
gies
Mul
ti-St
rate
gy
Man
aged
Futu
res/
CTA
Nic
heSt
rate
gies
Source: 2017 Preqin Sovereign Wealth Fund Review
Prop
ortio
n of
SW
F In
vest
ors
in
Hed
ge F
unds
Strategy Preference
Fig. 14: Strategy Preferences of Sovereign Wealth Funds Investing in Hedge Funds
33%of sovereign wealth funds invest in
hedge funds.
56%of sovereign wealth funds that invest inhedge funds utilize managed accounts.
INVESTOR PROFILEInvestor: Alberta Heritage Savings Trust FundLocation: Canada, North AmericaStrategy: Alberta Heritage Savings Trust Fund allocates approximately 6% of its total assets
to hedge funds. The fund invests in the asset class through direct single-manager hedge funds and has a preference for managed account structures.
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PREQIN SPECIAL REPORT: SOVEREIGN WEALTH FUNDS
SAM
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PRO
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REV
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over
cyc
lical
redu
ctio
ns in
fisc
al re
venu
es w
hile
mai
ntai
ning
a
low
leve
l of r
isk.
The
refo
re, l
ever
age
is n
ot p
erm
itted
in th
e fu
nd, u
nles
s fo
r cur
renc
y he
dgin
g pu
rpos
es. E
SSF
does
not
inve
st in
alte
rnat
ive
asse
ts d
ue to
the
liqui
dity
requ
irem
ents
dic
tate
d by
the
com
mitt
ee.
In A
ugus
t 201
3, th
e fu
nd im
plem
ente
d its
new
inve
stm
ent p
olic
y w
hich
incl
uded
equ
ities
.
EQU
ITIE
SA
s at
Q1
2017
, ESS
F al
loca
tes
7.5%
of i
ts to
tal a
sset
s to
equ
ities
, mee
ting
its ta
rget
allo
catio
n.
The
fund
inve
sts
glob
ally
with
a p
refe
renc
e fo
r lar
ge a
nd m
id c
ap e
quiti
es. I
ts e
quiti
es p
ortf
olio
is
benc
hmar
ked
agai
nst t
he M
SCI A
CWI.
The
adm
inis
trat
ion
of th
e eq
uity
por
tfol
io is
del
egat
ed to
two
exte
rnal
man
ager
s: B
lack
Rock
and
Ban
k of
New
Yor
k M
ello
n.
EQU
ITIE
S PR
EFER
ENCE
S
Larg
e Ca
p
Glo
bal
Mid
Cap
N
orth
Am
eric
a
Smal
l Cap
Eu
rope
Inde
xed
A
sia
MEN
A
Oth
er
Emer
ging
Mar
kets
alternative assets. intelligent data.
19
DOWNLOAD DATA PACK: www.preqin.com/SWF17EX
TERN
AL
INV
ESTM
ENT
MA
NA
GER
SFi
rm N
ame
Bank
of N
ew Y
ork
Mel
lon
Blac
kRoc
k
FIX
ED IN
COM
EES
SF in
vest
s in
sov
erei
gn in
vest
men
t-gr
ade
bond
s an
d al
loca
tes
58.5
% o
f its
tota
l ass
ets
to fi
xed
inco
me.
The
58.
5% a
lloca
tion
is s
plit
betw
een
sove
reig
n bo
nds
(55%
) and
infla
tion-
linke
d so
vere
ign
bond
s (3
.5%
). ES
SF o
nly
inve
sts
in s
over
eign
bon
ds is
sued
by
the
US,
Ger
man
y, Ja
pan
and
Switz
erla
nd.
The
fixed
inco
me
port
folio
is m
anag
ed in
hou
se b
y th
e Ce
ntra
l Ban
k of
Chi
le.
FIX
ED IN
COM
E PR
EFER
ENCE
S
Gov
ernm
ent
G
loba
l
Corp
orat
e
Nor
th A
mer
ica
Inve
stm
ent G
rade
Eu
rope
Hig
h Yi
eld
A
sia
MEN
A
Oth
er
Emer
ging
Mar
kets
OTH
ER IN
VES
TMEN
TSES
SF a
lloca
tes
the
rem
aind
er o
f its
por
tfol
io (3
4% o
f tot
al a
sset
s) to
mon
ey m
arke
t ins
trum
ents
, in
clud
ing
Trea
sury
Bill
s an
d ba
nk d
epos
its. A
s at
Q1
2017
, the
mon
ey m
arke
t ins
trum
ent a
lloca
tion
is
split
19%
to T
reas
ury
Bills
and
15%
to b
ank
depo
sits
.
NO
TABL
E H
OLD
ING
SIn
vest
men
t Nam
eIn
vest
men
t Loc
atio
nSt
ake
(%)
Am
azon
.com
Inc.
US
-
App
leU
S-
Exxo
n M
obil
US
-
Gen
eral
Ele
ctric
Co.
US
-
John
son
& Jo
hnso
nU
S-
JP M
orga
n Ch
ase
& C
o.U
S-
Mic
roso
ft C
orp.
US
-
Nes
tleSw
itzer
land
-
Nov
artis
Switz
erla
nd-
Wel
ls F
argo
& C
o.U
S-
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