In a Down Economy, SWFs Start to Make Friends

(August 27, 2009) – With private equity and corporate raiders quiet, sovereign wealth funds (SWFs) have stepped up as the preeminent mergers and acquisition players of 2009, and the deals they’re executing are increasingly done in tandem.

SWFs have been busy, especially the many funds controlled by the United Arab Emirates (UAE). According to Emirates Business 24/7 (based on data from MergerMarket), SWFs represent up to 50% of M&A deals in 2009. Sovereign wealth funds account for $17.5 billion of deals until August, the data shows, and the UAE, home to large amounts of oil-based capital, makes up $9.3 billion of that total.

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Increasingly, SWFs are working in tandem. Often looking for local expertise – home-country knowledge of investments have been proven to provide outsized returns – it has become common for large funds to partner with smaller, domiciled ones before making investments. Examples include Abu Dhabi-based Mubadala’s partnership with Malaysia Development in a Malaysian energy and real estate deal worth upwards of $1 billion; France’s Fonds Strategique d’Investissement possible joint venture with Mubadala in the French biotechnology field; Korea Investment Corporation’s agreement with Malaysia’s Khazanah Nasional and the Australian QIC; and the joint venture backing Blackrock’s purchase of Barclays Global Investors formed by Chinese, Singaporean, and Kuwaiti SWFs. In addition to gaining local financial knowledge, this trend towards joining with home-country partners is likely a result of SWFs looking for political cover following a decade of increased skepticism over investment motives from wary locals.

A survey released in July by Oxford University predicts that this trend will not abate soon. According to Oxford, 60% of asset managers surveyed – all of whom have regular contact with SWF clients – believe that joint ventures will continue between funds from different countries.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

A new survey shows that pension funds and asset managers view the latter’s services in a different light, with only 5% of pension funds willing to say that their asset manager was ‘excellent’.

(August 17, 2009) – As the summer comes to a close, a new survey shows a disconnect between pension plans and their asset managers.

According to a survey by Citigroup and Principal Global Investors, while almost half of pension plans (both defined benefit and contribution) surveyed rated their asset manager ‘good’ or ‘excellent’, disaggregated scores show a disparity between services. Asset managers performed relative well on stock selection, portfolio construction, and risk management; strategic asset allocation and tactical asset allocation, as well as providing access to new asset classes – at least for the defined benefit world – were rated less positively. Perhaps most discouraging for asset managers, 55% of pension funds rated ‘returns on their investments’ as ‘poor’ or ‘limited’.

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Not surprisingly however, asset managers surveyed were more liberal in their praise for their own services. Across the board, asset managers ranked themselves higher – particularly smaller asset managers. The most notable disconnect in perceptions was seen with providing new asset classes. While only 36% of pensions rated this as ‘good’ or ‘excellent’, 74% of asset managers did so.

The survey also showed a similar disconnect between pension plans and consultants. Approximately 50% of pension funds rated the services of consultants as ‘good’ or ‘excellent’, with services such as asset-liability management, investment advice, and performance monitoring praised. However, strategic asset allocation and strategy implementation and selection faired relatively poorly. When asked about the benefits of consultants, asset managers were once again more lenient in their views compared to pension funds.

Overall, the survey shows that pension fund sponsors have four main goals: (1) improving funding levels; (2) dealing with regulatory and accounting changes; (3) seeing good returns; and (4) strengthening their relationship with their sponsors. Though pension funds were likely to look for a holistic approach to meet these goals, asset managers often viewed these goals through a lens of providing individual products, many of which, the survey notes, do not seem to support the underlying worries of the plan sponsors.

Possibly the most striking statistic emerging from this survey is that only 5% of pension funds rated their asset manager as ‘excellent.’ If delighting their pension fund clients is a top priority for asset managers this fall, they clearly have a lot of work ahead.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>